Apparently there is a limit to how many houses Chinese investors can purchase in the U.S.  Foreign real estate purchases largely driven by Chinese investors plunged by 36% as internal controls in China made it harder to move money out of the country and trade war talks are having an impact in this sector.  While some might say this is small relative to the overall U.S. real estate market you need to realize that money from China was hyper focused on certain areas.  At one point there were new developments in Irvine that were seeing 80% purchases from Chinese investors.  This has a lot of potential to hit markets where volume and inventory is low and prices are valued at ridiculous levels inflated by outlier buyers.  There are many areas in California like that.  This also applies to areas like New York, Boston, San Francisco, and Seattle to name a few.  So what does this mean for these inflated markets?

Looking at the numbers

This is a clear pullback in foreign purchases in the U.S. real estate market.  The value of homes bought by foreign investors is at multi-year lows but more telling is the actual number of buyers is at a decade low:

This is significant and we’ve seen a drop across all areas.  No surprise that the largest buyer in dollar amount is China.  This is the group that has pulled back the most significantly and when it comes to prime California areas will likely have an impact.  This issue has many layers but many of these prime areas have top schools within their area and this is valued by many investors who utilize homes as investment properties after their kids go to school in these areas (e.g., NY, Boston, San Francisco, SoCal, etc.).

The CEO of Juwai even points to this:

“(CNBC) The Chinese were the leading buyers for the seventh consecutive year, purchasing an estimated $13.4 billion worth of residential property. Yet that was a 56% decline from the previous 12 months and comparatively the biggest percentage drop of all foreign buyers. Chinese economic growth slowed to 6.3% in 2019 compared with 6.9% in 2017, when the previous buyer survey began. The Chinese government also tightened its grip on the outflow of cash to purchase foreign property.

The Chinese may also be souring on U.S. real estate due to the current political climate. Anecdotally, real estate agents in California have seen a pullback in Chinese buyer demand. Southern California had been particularly popular with Chinese parents hoping to send their children to American colleges.”

And word is only starting to spread faster.  Tougher visa policies and tighter internal controls will likely make this an ongoing issue unless policies turn in another direction.  And this makes total sense in inflated markets where there is scant inventory and a few buyers can set the price.  Even a few years ago the thought of Chinese money pulling back even a little in California was unimaginable for a few cheerleaders of the housing industry.  All they could see was how their glorious little crap shack was “worth” $1 million even though it was built a few years after World War II and the only updating they have done is slapping granite countertops in the kitchen, added a few stainless steel appliances, made the home Alexa “friendly”, and made the bathroom look like a toilet in Caesars Palace.

No surprise here that tougher policies on foreigners is making things tougher on foreigners.  But it isn’t all the doing from one side since internal controls are also getting more stringent within China. …..more here