Chinese Cash Floods U.S. Real Estate Market
nytimes.com
nytimes.com
The dream of most ordinary people is to own their own home. When prices are pushed out of the range of ordinary people then the citizens have just sold their home overseas and can only rent it back. That can't lead anywhere good.
It's the end game of greed in which we have sold everything including our homes.
Countries no longer need to invade other countries - they just buy everything. It's a strange thing that there is an obsession with the risk of terrorism but selling real estate to other countries is not seen as a threat to national security.
If the government cared about its citizens then selling residential real estate to non-citizens/permanent residents would be outlawed. But instead what we get is a clear illustration that in our society the only thing that matters is money - our country is no governed for the people, its governed for the dollar.
The disaster can't be undone because governments will see the flood of cash and tax it, becoming addicted to the revenue and if anything, try to make more of it happen.
This will end badly one day, when ordinary people realise that the rich sold their dreams and ambitions to other countries.
b) If people can't afford to purchases these houses in the long run then prices will decline and foreigners will stop buying them.
The only serious downside is where there is artificially limited supply such as in places like SF.
>The Chinese government’s top envoy in Vancouver says the city’s skyrocketing house prices and affordability crisis are due to a lack of regulation in the booming real estate market. >Ms. Liu said this situation would not be allowed to occur in China
http://www.theglobeandmail.com/report-on-business/economy/ho...
> "The price of property in Beijing is very high"
> "If you consider how expensive housing is in Beijing or Shanghai, this is a bargain."
So, the Chinese government is clearly not doing anything about high housing prices in Beijing and Shanghai.
> the Chinese government is clearly not doing anything
> about high housing prices in Beijing and Shanghai
Beijing and Shanghai have just undergone building booms of a scale for which one can scarcely find historical comparisons. 3-5% growth rates in urban population for three decades. More people are being added to Chinese cities every year or two than live in all of California.
http://apps.chicagotribune.com/news/chicago-architecture-in-...
http://www.jacksonfuller.com/wp-content/uploads/2012/03/san_...
https://www.washingtonpost.com/news/wonk/wp/2015/03/24/how-c...
Prices in Beijing are actively propelling development of all the smallest properties, to the point that historical hutongs are now endangered historical relics. https://psuchina.wordpress.com/2014/07/24/endangered-places-... That releases pressure on prices, one way or another. Prices would be much higher if Beijing banned new development.
"demand being met" is not a boolean condition with commodities, much less something as complex as housing, with its constantly repriced financial assets, varying quality of good, and varying amounts of fluidity & cycles of construction.
In San Francisco, they're just rising and rising without driving any new development. The government funds single-family-homeownership to an extraordinary degree with the mortgage system we've set up, and this distortion has created an odd body politic where nobody favors permitting property rights to be exercised, where the population has a veto on the proper functioning of the real estate market. So new development is functionally banned. Broken city, too much democracy. Why would one want to move there from one's small hometown in Kansas?
In a functioning economy, one tends to move to where one's talents have the highest price, and everyone, in the end, benefits.
I can understand an argument saying that allowing a larger market is bad because it increases demand and drives up prices, but I honestly don't see why you would consider a foreign buyer worse than a domestic one. If these are people trying to get themselves or their assets out of China, they evidently aren't pushing the agenda of the Chinese government.
> Investments in the United States provide another advantage: a pathway to a green card. Chinese investors have been particularly aggressive at using a federal visa program called EB-5 that allows overseas citizens to put $500,000 to $1 million into a project that will create at least 10 jobs. Investors can get a green card in about two years. So far this year, 86 percent of the EB-5 visas issued worldwide have gone to Chinese.
Green Card = permanent resident
> So far this year, 86 percent of the EB-5 visas issued worldwide have gone to Chinese.
> Canyon Lake Ranch [...] soon will be a gated subdivision of 99 mini-mansions designed for buyers from mainland China. Some Chinese are buying homes purely as investments. Investments in the United States provide another advantage: a pathway to a green card.
Nov 23, 2015 - The Roots of China's Real Estate Rush http://www.nytimes.com/interactive/2015/11/23/business/china...
May 15, 2015 - Want a Green Card? Invest in Real Estate http://www.nytimes.com/2015/05/17/realestate/want-a-green-ca...
Sep 6, 2012 - Visas-for-Dollars Program a Boon to Hotel Developers http://dealbook.nytimes.com/2012/09/06/visas-for-dollars-pro...
Did America just run out of land? You can always build new homes, if people are willing to spend more on those places than they're worth let them and simply build more.
Eventually the price would have to come down. If you're in a very small nation, say Luxembourg or Monaco then yes, it's a problem. But the US has so much undeveloped land it is almost wasteful and if the Chinese are willing to bankroll the next wave of construction I'd say thank you and get on with it.
This is, at the largest, a state level issue. Mostly, it is a county or city level issue.
Here, I'll go with a story. I was watching 'Star Trek: Into Darkness', the 'new' set of films. There's a scene where they chase Benedict Cumberbatch about on the top of a flying ambulance in the skyscrapers of the future San Fransisco. My brother, who lived at the time on Geary st. and was running for a seat on the business commission, was telling me that scene was too fantastic for him. Not because, you know, aliens and star ships. No, but that in a mere 200 years the SF housing and construction boards would allow that many skyscrapers. Proper city planning to him was more fantastic than Star Trek.
Now, people really want to live in SF these days. It's not a political climate that is keeping them from building more apartments. It is real stupid, very tiny, small world and small people, corruption and bribery. It is the same story as it always has been. People complain but don't do anything about it.
Hard to say. If it's anything like Vancouver (mentioned once IIRC in the article), many purchases happen for two reasons. First, to get money out of China, and second, to provide a place for Chinese kids to get a "better" education.
According to a study done by a recent Vancouver urban planner, a major chunk of new home purchases by ostensibly Chinese buyers were to students or homemakers (see slides 18-23):
http://www.slideshare.net/ayan604/ownership-patterns-of-sing...
This was for homes with a median value of 1.3M and avg value of 2.3M.
"Parachute kids" like the above buyers are super common in Vancouver. I would assume, though, that if their intention was to stay, the entire family would move.
I actually think international money in real estate is a problem. One I'd even be willing to discuss certain measure of regulation. But it's impossible to do that with Fox News level hyperbole.
The result of that was that the Japanese asset bubble collapsed, all the (generally heavily-leveraged) foreign buyers found they were broke, and Americans bought back the properties at fire-sale prices.
I wouldn't be surprised if the same thing happens again when the Chinese asset bubbles crash. Locals have a huge information advantage over absentee landlords; this is far more likely to end poorly for Chinese buyers than for American residents.
No country is buying your home country. Just a bunch of foreign individuals snapping a few properties in a certain segment of the real estate market (upscale) helping the local and national economy alike. If you're really think that every foreign RE investor is a secret spy working for some shady state-sponsored organization to subvert your country, it's really a shame.
- The dream of most ordinary people is to own their own home (...) we have sold everything.
Who is this "we" you speak of? Are people born in the US entitled to real estate when they are born? I don't know about you, but if I were priced out of my area because foreign money was flooding my country, I would just invest in real estate developments in other parts of the country (or any other part of the world where I could be free to invest, away from stupid nationalist laws like you defend) which were still cheaper, undervalued and not affected by the bubble. Best case scenario, I get to grow my personal wealth and I would get to be making my country even richer. Worst case, I would be living in a place that is affordable.
- selling real estate to other countries
The real estate is not being sold to China. It is being sold to a Chinese. The Chinese investing would like to see their investments safe, so it will be in their best interest to keep things from blowing up.
Thank heavens, globalization is already here, and it is not only supposed to benefit the people in rich countries to buy cheap things on Walmart. It is also supposed to help the poor countries to develop stable institutions, which can only come if there is free flow of people and work. Deal with it.
- If the government cared about its citizens then selling residential real estate to non-citizens/permanent residents would be outlawed.
So, you want Government to be Big Mommy that accepts the poor people in dire situations but God forbid some foreign that beats you in your own game? Fuck "progressives".
- The disaster can't be undone because governments will see the flood of cash and tax it.
And then they will take the tax money and try to provide public services to the people that do live there? Oh, the horror. Cry me a river.
We should not want to hear the noisy indignation of someone pretending to have authority through language like "Big Mommy" and "Fuck progressives". If you speak this way, show the reach of your intellectual authority, rather than your cheap indignation.
Economic modelling is not easy. You make it sound like you have a command of something. Show us your substance.
I do think it is misguided, and I do think this idea that Americans should be protective of their "land" at the same time they ask others to be open to people and trade and globalization is a terrible example of American Exceptionalism. It is a meme that should be fought. Hard.
"Fuck progressives"?
I could've written This double standard of "open-borders-and-diversity-and-miscegenation-and-we-are-all-the-same-why-do-we-treat-people-differently", but when confronted to the possibility of a foreigner acquiring real estate in the US go all it-is-my-country-and-what-about-the-american-dream-how-dare-we-let-them-OMG-it-should-be-outlawed" is very present in so-called "progressive thought" and it is incredibly hypocritical. Fuck that!
But I decided to go for brevity, and apparently the metonymy did not get through. So, apologies for it.
The only question I would have is what happened to export controls of capital? Is all this money legit? Cash is king I guess.
What hurts SF from a jobs perspective is the lack of 1-2BR at the $1500-3000/mo price point, not the affordability of housing. If the "SF deal" were that you could rent for 5-10y at $1500-2000/mo and have a reasonable place, make 2-3x the prevailing wage in other markets, and then buy a house in SFBA (if your equity hits) or elsewhere (if it doesn't), then that's a pretty reasonable deal.
What I hate is the cost for a new person to move to SF and find reasonable housing, either solo or with a family, with time pressure, and without local connections for roommates, sublet of a rent controlled place (which happens...), etc.
If I'm paying fair rent, I don't care if the check goes to a management company who pays a Chinese investor, a REIT, an earlier tech person, or someone who has owned property in SFBA since 1980s.
Encouraging sale of property at market price from people who bought it in pre-boom period, to a REIT or Chinese investor directly, is also a huge win for CA on taxes (and thus for residents), due to prop 13. It also converts the asset of a nearing-retirement-age person into cash, which might be more productively deployed elsewhere (or, a late-90s buyer, who might instead choose to invest in startups).
The problem is owned property being left vacant.
> During the real estate boom of the 1980's, Japanese investors purchased or financed tens of billions of dollars of American property
> the Japanese are now forced to consider the same unpleasant choices that their American counterparts have already been confronting: foreclosing on mortgages, writing down loans and thus acknowledging grave losses, or selling the whole mess to someone else, almost certainly at a loss.
> The Mitsubishi Estate Company ... Rockefeller Center ... mortgage for $1.3 billion
> The Shuwa Corporation of Tokyo ... ARCO Plaza complex in Los Angeles, the U.S. News & World Report Building in Washington ... 18-story office building at 551 Madison Avenue ... $10 billion in debt
> Mitsubishi Trading Company ... 1,400-room Westin Bonaventure hotel ... $75 million mortgage.
In summary, Japanese companies bought commercial property via loans.
Today, Chinese individuals are buying residential property, paying full price in cash up front with the aim of settling down in America and sending their children to the local schools.
Doesn't appear to be the same situation at all.
I saw rich people overseas buying real estates with cash, giving birth to kids for citizenship with tourism visa, sending their older kids to private schools here over the last few years, it's a trend getting stronger. While USA got some property tax in the pockets, the damage this does is more than any gains.
They come here simply because they have cash. The business of America is business, I guess that's the only thing matters.
If you own, you make big cash - you're for it - sell it all!
If you don't own - you're against it - you'll never own a house.
Great way to fuck the basic happiness of a society. And for what? Money.
A big difference between these immigrants and earlier waves is the ones coming now have already made it, often by being shrewd about playing the system. This also means they have no compulsion or desire to assimilate, unlike past immigrants who had to work within the system here to ultimately find success. I have been personally shocked by the level of contempt shown of American values - although this is something you will only see expressed to members of the same circle (I look like them and can talk like them, which gains me admittance).
All of my own grandparents and some of my own parents immigrated from china, and I have many other friends, acquaintances and family members who I would qualify as recent arrivals (my more negative statements apply to some of them) so I am not inherently anti Chinese immigrant. But I am not optimistic about the new arrivals being a positive thing in the long term.
As an American living in Asia this is horrifying. How did you discover this group of Chinese people who were so successful that they have to hide their assets, yet so stupid that they seek public health care in one of the only first world countries which does not adequately provide it.
In the long term, everybody's dead. In the short term it won't matter much but you could make it better by showing the 'new arrivals' the way to integration and success. That's in everybody's interest.