Chinese investors are expanding their presence in the United States property market with a buying spree extending from gateway cities like New York into middle America, according to industry consultants.
Mainland firms announced commercial real estate transactions worth US$5.9 billion in the United States last year, according to data from New York's Rhodium Group.
Of these, deals worth US$1.8 billion were completed during the year, a new record and up from US$70 million in 2012 and virtually nothing before 2011.
Geographically, the investors are no longer happy with returns on offer in New York, San Francisco, Los Angeles, and Chicago, and are now moving beyond these cities to Orlando, Miami, Houston, Dallas, Sacramento, and Orange County, according to Kimberlite Group, which has advised China Railway Construction Corp, the world's largest contractor, and the Export-Import Bank of China, a policy lender supporting the overseas expansion of Chinese firms.
"The cap rate has come way down and there is very little return in the class-A office building space in these lead cities," said Kimberlite's Alan Pomerantz.
Investors were moving into cities like Miami and Orlando where there was big infrastructure, Pomerantz and Kimberlite's chairman, Kenneth Hamlet, told the South China Morning Post in a telephone interview from New York.
"A lot of money from China is actually going into Detroit right now, on the theory that you cannot buy real estate any cheaper than in Detroit," said Pomerantz. The US carmaking city filed for federal bankruptcy protection last year.
Home prices in 20 US cities rose in October from a year ago by the most in more than seven years, according to the S&P/Case-Shiller Index.
Thilo Hanemann, a researcher director at RHG, said in an e-mail: "Prime US property has become an attractive proposition for Chinese investors trying to diversify their global portfolios, increase their returns in an era of low interest rates, and hedge against a slowdown of China's economy and a bubbly Chinese property market."
One advantage that Chinese investors have is that they are often able to bring funds or their banks with them when they invest overseas.
However, they needed to hire their own local advisers in deals of a large size or complex nature in order to know about the US market and to be able to negotiate a fair deal, Pomerantz said, citing as an example a Chinese investment company involved in a US$1.6 billion joint venture in Oakland that was solely relying on its local partner while the Chinese company supplied most of the funds.
"That's not a very good idea," he said, adding that Chinese investors needed to have someone to watch for law changes to protect them against any punitive taxes which could be triggered when they decided to sell their investments.