East-West Property Advisors' Director Sam Van Horebeek was interviewed by Shanghai Times around investing in the US real estate market. The article was published on July 9 2014. An excerpt of the interview is below:
It’s hard to say when it started, but foreign projects started showing up more and more at Chinese real estate expositions. People went from being skeptic and cautious of the foreign real estate markets to confidently buying overseas property. Consultants flocked to the market following the rising demand of Chinese interested in buying overseas property.
For some Chinese buyers the reason to buy overseas is for investment. For others it is to get an identity card (visa, green card passport). Other buyers are interested in securing a pension for their future, and for some it is to for their children to study abroad. Whatever the reason, in the eyes of these Chinese buyers, abandoning Mainland China’s real estate market and buying a home in a foreign country seemed to be the only choice.
Recently in Jeju, South Korea, the new governor gave a speech saying China’s large investment projects in Jeju are “speculative capital.” The project he is referring to failed to receive the final government approvals and was forced to “start all over again.” Policy changes like this are one of the many risks for Chinese buying properties overseas.
Case studies on New Zealand, New York, Korea, San Francisco (<not translated>)
Risk 1: Immigration policies are always changing.
Risk 2: Easy to buy, hard to resell.
Risk 3: There is a reason why it is cheap.
Sam: In the short term, the Chinese housing market has low potential for appreciation due to its instability as well as other factors. Many investors have been concerned about China’s housing market and in turn have looked towards the US housing market instead. The current U.S. housing market, whether for personal use or for investment purposes, is an excellent opportunity. We have customers who are easily able to reach an annual rental yield of 8% and in some special cases reach a 12% annual yield.
Sam: Vacancy rates and availability is directly related to the city. In the United States, there is a national vacancy rate of 4% and lower; the lowest it has been in 10 years. In cities like New York and Seattle it is even lower. The main factor leading to a low vacancy rate is a lack of supply in popular cities. Also, higher credit requirements have resulted in many Americans to be unable to get obtain mortgages causing them to rent rather than buy. As for liquidity, Chinese customers are very keen to buy in New York, San Francisco, Los Angeles and other popular locations. Real estate in these popular cities is limited. In the past two years prices have risen quickly, and this trend will likely continue for the next few years.
Sam: The U.S. has no laws limiting foreigners from purchasing real estate, however if the foreign buyer wishes to live in their purchased property, they are required to have a valid visa or green card. One of the best ways to get a green card is through an investment project as part of the well know EB-5 investment program. This means that at least $500,000USD in personal assets needs to be invested in a commercial real estate projects such as shopping malls, hotels or other public facilities. It is crucial that the investor carefully selects a project because not all projects will eventually succeed. The choice directly affects the investor ability to obtain a green card or whether the investment will eventually recover the cost.
Buying a home in the United States, if you do not have an extensive knowledge of the real estate market, is a great risk. In many case the available information is not reliable and sometimes is totally misleading. In order to minimize risk, Chinese investors should look for a reliable and timely “buyer’s agent/consultant” to help them avoid a lot of unnecessary detours. A buyer’s agency is a standing intermediary for the buyer. Many Chinese investors mistakenly think that all real estate agents are “seller’s agents” or simply do not know that a “buyer’s agent” exists. Therefore when a Chinese buyer approaches a U.S. agent they tend to express distrust and assume that the American real estate agent will only protect the interests of the seller. In fact the U.S. real estate transactions are typically shared by the “buyer’s agent” as well as the “seller’s agent” insuring that the interest of the buyers and the sellers are both represented. This is different from the transactions that take place in the Chinese market.
Source: Shanghai Times, July 9 2014