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Chinese Stock Market Crash & Devaluation of the Yuan: What this Means for US Real Estate

Category : Real Estate

Since China’s first major devaluation since 1994, China has recently experienced a slow-paced economy, market turmoil, and devalued currency. These factors are leading Chinese investors to convert their yuan into other currencies by investing overseas. Looking for a safer place to invest their money rather than their own slowing economy, Chinese investors have been buying US real estate of all kinds.

Post stock market crash, the Chinese have lost 30 percent of its value and continues to see major swings, and more than half of these citizens are now considering buying foreign real estate. Although different segments of the Chinese will invest in various ways, it is expected to have a positive impact on the United States.

Reforms in China earlier this year led to a relaxation of government restrictions and bond and currency markets inflating asset prices across the world. Especially in regard to properties.

Another drop in the Shanghai stock market led to a lot of concerns regarding how to recoup losses. Many of the wealthy Chinese are caught between whether they should let the market settle or invest in somewhat expensive real estate.

In 2015 so far, the yuan has fallen 2.6 percent versus the dollar. It now takes about 6.37 yuan to buy $1. Therefore, the Chinese government made a decision last month to downgrade the country’s currency added to their urgency since a weaker yuan makes buying real estate in dollars more expensive. (CBS News)

As a result, China’s economy has slowed even more than expected in the past few months and investors have stepped up their buying. Many are choosing to investment routes overseas in hopes that they will regain what they have lost before the Yuan devalues any further.

China’s Effect on the Real Estate Market

Out of the $104 billion in total sales from foreign investors in the United States, Chinese buyers accounted for $28.6 billion. Half of those sales recorded to be in Florida, California, Texas, and Arizona. This year, Chinese investments in overseas commercial properties alone exceed $10 billion dollars.

“Chinese buyers have become the most aggressive foreign investors in New York City, surpassing Russians in volume and mass,”reports The Epoch Times.

This attempt by the Chinese is a strategy for outbound residential investment in attempt to rescue the Yuan. The trend is projected to continue short-term until China can resettle their markets at home.

The Chinese are currently the largest group of foreign real estate buyers in the U.S., contributing to 16 percent of homes and condos purchased by foreign buyers. This number has increased by 68 percent since 2014.Real estate agents claim to have already noticed an increase in urgency among foreign buyers to purchase property in the U.S.

A U.S. broker stated,

“Because they are insecure about the economy and the politics, with the RMB [yuan] devaluation, the stock market got mashed, and the real estate in China is a big bubble — there is nowhere to go.”

Some disagree in that it is too soon to associate China’s economic difficulties with overseas real estate, but the increase in Chinese property owners in the U.S. is hard to ignore.

Houses being purchased are typically more expensive properties, worth an average of $831,800. There is a high demand for luxurious properties around larger cities such as New York, Los Angeles, and San Francisco, as they are seen to be ‘deflation proof’. Chinese homebuyers also like the U.S. real-estate market as a base for study-abroad programs, as a way to diversify holdings.

“Since many investors have been heavily hit by the equity market in China, they see U.S. real estate as a relatively moderate risk, high-return investment. Especially if buyers foresee the RMB/Yuan devaluation and market volatility continuing,” says Svenja Gudell chief economist at real-estate-research site Zillow.

“They’re looking for a safe haven, and the real-estate market has always been looked upon as a safe haven for Chinese buyers,” says Andre Wu, real-estate agent at Daniel Gale Sotheby’s who caters to Chinese luxury-real-estate buyers in Long Island.

Investments in the US Influenced by Chinese Government

As many of China’s rich have ties to political figures, most are looking for a place to get away from government scrutiny. In their eyes, the U.S. is seen as more politically and socially stable.

Chinese President Xi Jingping started focusing on an anti-corruption campaign back in November 2014, and many have been incarcerated as an outcome of these efforts.

Since both politicians and the wealthy rely on each other and need to make smart investments for a prosperous future and economy, the Chinese government is actively encouraging affluent individuals to purchase both commercial and residential properties abroad.

It is projected by Emma Hao, broker for Douglas Elliman who specializes in Chinese clients, that we will be seeing a different kind of Chinese buyer seeking property in the U.S. There will be a reduction in buyers looking for homes, but an increase in those looking for investment properties.

Thus far, Chinese individuals have been allowed to recalibrate $50,000 (USD) into other currencies annually, though this is likely to change soon.

With the Chinese government readying to launch the Qualified Domestic Individual Investor Program, Chinese citizens would be allowed in invest overseas directly. Individuals with at least $160,000 in financial assets are authorized to invest. The program is likely to launch this year due to the development of the bolstering real-estate purchases by the Chinese.

“With QDII2 in mind, within five years we might look back and think of the current levels of Chinese cross-border investment as quaint,” Andrew Taylor, co-CEO of Juwai.com, a website that helps Chinese to buy properties abroad, said to The Wall Street Journal in July.

What does all of this mean for you?

With the heavy influence of Chinese investors in the United States, do not be surprised to see luxurious homes soaring off the market.

“Homes that are in highest demand by Chinese buyers are priced around $1.2 million on average, and most of them pay in cash. In the last year or two, we’ve seen more sales pushing $5 to $10 million,” said Tere Foster, managing broker for Team Foster at Windemere Real Estate in Seattle.

If you are looking to sell your luxury home in Southwest Florida, the

time is now.

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