Chinese Investors Fuel California Housing Bubble
thediplomat.com
thediplomat.com
We've been approached by a few with very low offers (via an agent). I've been tracking sales in the neighborhood and every month or so another 4-5 houses that were never on the market are sold. They are then rentals shortly thereafter. I've been pretty surprised at what things are still renting at, I thought it would plummet prices (and it still may) but they seem stable at about .6-.70 cents/sqft. It's not the Bay Area or even the nicest place in town but I find it peculiar that large investors would be interested enough to buy up 1% of the houses in an area every month or so, though the prices seem pretty good and that'd be a great rate of return.
[1] http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-ho...
All the talk of the Financial Sector, Credit Default Swaps insured by AIG London advised by Blackstone, and 30:1 leveraging of Mortgage Backed Securities deepening the crisis is met with yawns and allegations of being a socialist hippie who hates business.
Nope, it was the poor people who were too stupid and lazy to afford mortgages who were at fault. They were blamed for the 2008 crisis, and they'll be blamed for this bubble too. Oh, and the Communist Chinese too for good, Xenophobic measure.
I work with hedge funds that do this in CA, and neither of your points strike me as true.
I can't find the article I read a few months ago but it had similar anecdotes.
I'm completely OK with the US as a place where people from all over the world can reinvent themselves and tell a second chapter of their stories. That's what it's been for hundreds of years, and what made it great. Almost every one of us has at least once ancestor who came here to escape trouble in the old country. I'm not OK with it when it means that Americans are priced out of their own housing, especially now because these corrupt foreign officials aren't even coming here, but just buying real estate just in case things go bad in their home countries. Not only does it make housing unaffordable for us, but there's the moral hazard angle as well: by allowing nonresident foreigners to buy so much of our best real estate, with a great proportion of those being corrupt officials or people seeking resale to them, we're effectively subsidizing corruption in the rest of the world.
(Is it correct that every foreign investor buying real estate is a corrupt third-world ultra-HNWI? No, that's only about 1 in 4. The other 3 are speculators banking on the resale value to corrupt officials abroad.)
The question is: why are we allowing foreign speculators in our real estate market, prices where they are, in the first place? Once an average house costs more than 8 times the average income, you have to protect the homeland. Unless you've stopped caring about your own people.
I'm a foreign national, incidentally. I contribute to the high rent in NYC. I'd say tech money is ruining the city but the fellas down in FiDi got in ahead of us 30, 15 and 5 years ago.
Let's say there are only 3 kinds of investors: Chinese, Chilean and Czech. In a ideal world where those countries have the same population and the same wealth distribution, you'd expect each country to be represented equally, so you'd expect 33% of investors to be Chinese, 33%$ to be Chilean and 33% to be Czech. Now, if you see that 40% of investors are Chinese, then they are clearly over-represented.
It's kind of difficult to define 'over-representation' in this case, because the normal parameter (population of country of origin) doesn't really apply. Now, if you define it as 'number of people with the money to invest in housing in California', maybe you have a way to measure it...
Ya, like other groups in California don't?
I am Asian myself, though not Chinese. There are such groups associated with my ethnicity which engage in such mutual support. I, personally, am not laboring under the impression that this is any kind of proof of one group's superiority over another. Please produce your evidence to the contrary.
So, is any mention of ethnicity an automatic indicator of mild racism? How is this at all logical? It's not, so I'm pleasantly surprised that you were downvoted.
Do we ignore all the back-scratching that's been happening in the California high-tech sector (and one that's lacking in diversity too)?
No. If you look back on my posts, you'll find frequent comparisons of mine of the Bay Area tech sector to the old boy network in Mad Men.
Some of the Asian communities do a better job of it than other ethnic communities. That isn't racist. Facts aren't racist. Only people's interpretation of facts can be racist. It only says something about you if your only interpretation is that the condition is directly tied to race.
If the condition isn't tied to race, then noting this might cause other people to benefit themselves economically through cooperation.
I have a couple friends, immigrants from China, who wanted to retire and move to a part of San Francisco with less steep hills. They complained that every time they found a place, it would be snatched away by somebody with a whole lot of cash. Mainly, somebody from China.
Eventually, they did find a nice little house in the desired neighborhood, much smaller, only a few yards away from a bunch of grocery stores and the church that they attend. So, that worked out for them.
That part was kinda important to understand the example :)
Followup questions I'd have: 1) Historically, what proportion of SF or nationwide housing is sold to foreign buyers? 2) Historically, what proportion of that figure is sold to Chinese buyers? Especially curious about #1. If the Chinese are just taking the place of yesterday's big foreign buyers (Russian, Japanese, or whoever), then we can put this into a typical perspective. If indeed they're raising the overall percentage, and not just their own representation within it, that's a more compelling statistic in favor of the author's thesis. Either way, I would have liked a bit more analysis in the piece.
In New York and London, it's "the Russians" who are blamed, as if they were the only one; in San Francisco, it's "the Chinese"; in parts of Southern Europe, it's "the Arabs". In reality, it's nonresident dirtbags from all over the world, including the U.S. Attributing it to one nationality is racist, unfair, and misleading. Really, the problem is dirtbag global elite speculators (and, likewise, the average Russian or Chinese isn't a dirtbag, and the average American ultra-HNWI is one) but that's too many words so people just shorten it to "foreign speculators". (By the way, speaking as an American, I am totally fine with Londoners and Parisians calling American nonresidents "dirtbag foreign speculators". It's not racist to hate the global elite of all stripes; it's patriotic no matter where you are.)
Is it "the Chinese"? No. It's corrupt ultra-HNWIs from all over the world. People just blame "the Chinese" because a fifth of the world's population is Chinese, but it's really unfair because most Chinese people (like 99.9 percent) aren't the dirtbags buying up Palo Alto, and many are the victims of the dirtbags buying up Palo Alto.
That's one of two trends here. There other is specifically Chinese, like Hong Kongers, Taiwanese, and Koreans before them, emigrating to various English-speaking cities around the Pacific Rim, such as Sydney, Melbourne, Auckland, Vancouver, Toronto, Seattle, and San Francisco/San Jose. The (Northern) "California Housing Bubble" is a conflux of these two trends.
So, the articles should be saying something like, "there's fears of a property bubble, but fortunately, we're selling a lot to foreign investors, so we're off-loading our risk". Instead they're saying, "we're in a bubble, and now it's being fuelled by foreign investment!!".
Really, foreign property ownership is pretty sweet. You take their money, but are under no obligation to protect the price of their assets in your future policy. So, if prices stay strong, you can redevelop.
FIRPTA requires a buyer to withhold 10% of the purchase price, not 30%. But that's just to ensure the tax is paid. The tax is only on the gain in the property, not the gross sale price. Sales registered with the IRS ahead of time (so that actual tax amounts can be estimated) do not require withholding.
California is just particularly attractive to wealthy chinese.
http://money.cnn.com/2014/03/25/news/economy/china-us-immigr...
You are likely misinformed. The purpose and one of the requirements of EB5 visa is to create job opportunities for Americans [1]. Simply buying real estate with investment potential is not going to satisfy that.
[1] http://www.uscis.gov/working-united-states/permanent-workers...