By 2019, Chinese purchases of US residential real estate had fallen by more than half—from $32 billion in 2018 to $13.4 billion, says Gay Cororaton, a research economist for the National Association of Realtors.
Slower growth of the Chinese economy, tightened capital outflows, a strengthening US dollar, and the US-China trade war are the main reasons for the decline.
The 2015 crash in the Chinese stock market added to growing concerns about its debt-laden economy, which led to increased capital controls to restrict overseas real estate investments. This resulted in fewer all-cash Chinese buyers of US residential real estate and more Chinese buyers having to take out loans to finance their purchases.
Evolving Demographics
At first glance, most would think that the days of heightened purchase activity by Chinese buyers of US real estate are pretty much over. However, this assumption ignores how closely connected the two countries are becoming, despite current trade frictions.
Asians are the fastest growing racial group in the United States, and this trend is particularly notable in the Bay Area. In Alameda Country, for example, Asians now make up the largest share of its population, according to newly released data from the US Census Bureau. In Santa Clara County, one of the first minority-majority counties in the nation, Asians have been the largest racial group since 2014. Asians make up the second-largest share in San Francisco and San Mateo counties. Overall, in the short span of three decades (1980-2010), the Asian population in the Bay Area rose by 300 percent!
A Powerful Relationship
This trend has carried over into investments.
In its November 2017 report, the Bay Area Council Economic Institute notes that China and the Silicon Valley/San Francisco Bay Area are closely connected through technology and innovation, a relationship that is growing stronger through inbound investment.
California is the primary destination in the US for China’s outbound technology investment, most of which has been received in the last two years, according to the report. The lion’s share of this is through acquisitions, primarily in information and communications technology concentrated in Silicon Valley and spread across semiconductors, ICT equipment, and software. Investment in biotechnology is also significant. This investment comes primarily from private companies as opposed to state-owned organizations.
Leading Bay Area companies such as Uber, Lyft, and Airbnb have received substantial infusions of capital from China, primarily through Chinese participation in funding rounds. Many startup and early-stage companies have also received funding. Typically, Chinese investors in these smaller companies look for cutting-edge technologies to fill competitive gaps in China. For startups, Chinese investment brings not just capital but better access to Chinese markets. This activity is supported by a growing number of Chinese accelerators, corporate innovation centers, and venture funds that have opened in the region.
Attracted To Security
A growing Asian population and increasing investments are not the only fundamentals which lend strength to the Bay Area’s residential real estate market. The other is safety.
US real estate, along with public treasury bonds, are seen as safe-haven investments by international capital looking for stability. Consider this: of the total 6.81 trillion of treasury securities currently held by foreign countries, Japan and mainland China hold the lion’s share.
While capital restrictions from the Chinese government, the coronavirus, and US-China trade disputes have slowed purchases from China, US real estate will predictably remain a safe haven for investors.
“Long term, I think the pandemic leaves intact the status of the US as a safe-deposit market where it is wise to invest both for gains and for diversification as a hedge against bad events. If economic forecasts are right, and the US has a sharp but short COVID-19 recession, we expect Chinese acquisitions of US real estate to return to trend,” says Georg Chmiel, the executive chairman of property portal Juwai IQI.
In the short term, the US real estate market is facing headwinds, but long-term prospects remain strong, according to Adam Lysenko, an associate director at Rhodium Group. “From a diversification perspective, real estate investors from China would like to have operations outside of the Chinese market, which can be volatile and suffers from distortions due to the absence of available investment alternatives for many people,” Lysenko says.
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