China Scoping U.S. Real Estate
While there's been much cross-pacific loan relocation, it looks like the world's largest holder of American loans may be surveying our shores for property acquisitions. According to a new report from Forbes, China is slated to be the largest to spend billions of dollars on American real estate in the next few years. Outpacing both Canada and Australia (which stand as the second and third most popular destinations for Chinese buyers), American real estate overwhelmingly centered on populous and economically thriving metros will likely undergo aggressive acquisition as the PRC seeks greater property holdings overseas.
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As I noted in a prior post, the value growth outlook for American property remains consistently positive. As the Forbes disclosure notes, buyers are spread among both wealthy private investors and larger financial holdings, with widespread Chinese interest acting as a pronounced vote of confidence in the stability of the U.S. real estate market. The areas of highest potential interest seem overwhelmingly concentrated throughout Los Angeles, San Francisco, and New York. The Forbes piece highlights that Chinese purchases acquired northward of $10 billion of U.S. property in 2011, accounting for about 9% of foreign buyers that year – outpaced only by Canadians.
While much of this interest is driven by wealthy private buyers, a respectable amount is also motivated by more intrepid investment firms who are looking for foreign assets with the potential to mature greatly in value. Taking the Longview in terms of real estate buys, Chinese firms often see the U.S. as an ideal location for overseas investment. The combination of America’s innately sustainable economy and the temporary crash in property evaluation has served as a magnet for Chinese investors, who expected property to pick up its lost value and sustain a steady growth throughout the ensuing decade.
So What Does This Mean for American Homeowners?
If anything, the widespread consensus among Chinese buyers that America (or at least our most affluent metros) holds stable property investment helps validate predictions that the real estate recovery is sustainable. The focus on populous metropolitan regions also helps quell any apprehension that we could see a boom-bust in property values throughout regions like California and Mid-Atlantic despite any minor upsets. A diversity of purchases beyond more aggressive American hedge funds also helps diversify the number of bodies who hold larger portions of urban property, mitigating the risk that hedge fund orchestration could have on the stability of urban property values.
Ultimately, a rising tide of overseas interest in American property is not a definite validation of market stability, but may still go a long way towards stabilizing value growth outlooks in more volatile metros. China’s focus is strongly directed at property along the West Coast, and assuming buyer activity remains persistent, it could provide consistent demand that serves to even the keel in a region that became notorious as the originator of the disastrous 2008 crash.
Photo: Trey Ratcliff