We are witness today of a massive flux of capitals coming out from the Middle Kingdom to foreign lands. It is especially true in the trendy metropolis such as New York or Paris. Those locations come off as a stable investment for the foreseeable future.
A new study by the Rosen Consulting Group looked at the state of Chinese investment in United states’ real estate. From an amount that was described as a “meager” number in 2010, they now amount to over $100 billion in 2015 (including mortgage-related financial products).
With $93 billions between 2010 and 2015, the Chinese are the largest foreign buyer group of American Housing. They also buy higher-end properties: their average buying price being at $831,800, against a little shy of $500,000 for the other groups.
In that regard China is likely to surpass Norway, which had used money from oil to invest massively in commercial real estate in the country too.
Chinese investors have spent $300 billion on US property, study finds
Why This Love for Foreign Real Estate?
First of, high-end real-estate that the trendiest western metropolis provide has always attracted investors. Paris for instance had several waves of foreign investments, from the US, the Golf and now China.
Most experts agree that China is in the middle of a real estate bubble. It should come as no surprise as they love this kind of investment. The day it bursts, however, more than a few investors are going to lose their shirts. So where to turn to? Naturally the foreign markets, considered more stable.
Another factor comes from an unexpected field: Education. There are at the moment over 300 000 Chinese students attending school in the United States. Their family have even more so an incentive to buy as some school require a local address to register.
The last piece of this puzzle comes from the “70-years law”. Let me explain: in China you don’t actually own your house. The soil it is built on belong to the state and the house ownership itself has an expiration date. The mechanisms of this law are unclear and many see it as a legal vacuum.
There are a few things that could go in the way of those uninterrupted flow of capital, however. First the Chinese government, in its effort to promote its home market could restrict outgoing investment through regulations.
Second, even the benefactors of these investments might dislike the side-effect coming along. Several economists pinpointed that it might lead to harder access to propriety for locals as prices go up. Chinese being more long-term, they are indeed more willingly ready to pay over the market price.
It is not all bad however! This phenomenon had a dynamic impact on employment: creating new jobs in sectors such as contractors. Also sellers and owners alike get better capital gain from their properties.
Reciprocity: Buy in China?
Billions of dollars in investment flows out from China every year: companies, farming lands, real estate, you name it. But while we mostly welcome those funding in the west, our own investments in China are sometimes received with much more scrutiny.
In 2006 appeared the first restrictions on foreign-owned real estate. You were required to have lived a full year in the country to be eligible to buy accommodation. And since 2010 you could only have one property to your name, for your personal use. Chinese government officials labeled those laws as a speculation-fighting policy. But in 2015, in the need to bolster its own economy China started to soften its stance on the matter.
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