Chinese investors making smarter decisions when it comes to buying US homes

In her job as a psychologist, 31-year-old Shanghai resident Katherine Yan helps post 1980s parents understand their children better. In her spare time, she does her own homework as an active international property investor who has spent months travelling around different US cities to find the best one to put her money in.

Yan owns two houses in Seattle and one studio in Fukuoka, Japan, and she is currently exploring if it is good timing to make a foray into London after Brexit, despite the fact that it is getting increasing difficult to send money out of China.

“The transaction system in western countries is very clear and transparent, even foreigners will not feel at a loss. I think my purchasing experience has been very smooth and I dare to say they are all successful investments,” said Yan, while browsing the real estate information apps Zillow and Trulia downloaded on her iPhone.

The story began in summer of 2014. Worried about the probable devaluation of the renminbi and future needs of her two small children when they were old enough to study abroad, Yan started looking at the US real estate market.

“My investment principle is straightforward – ‘buy-to-let’ for stable returns,” she said.

Rather than choosing California or New York, Yan eyed a second tier city that was home to Bill Gates’ Microsoft, Starbucks and Boeing. “I visited Los Angeles first, but the prices were already high,” Yan said.

In Seattle, she found a local Chinese agent and checked out more than 30 houses.

“I did a lot of homework by myself, for example, taking Uber to ask locals if they enjoyed living in the city.” The conclusion: Seattle was an ideal place for both study and retirement, she said.

“Seattle’s development potential is much bigger than LA. It has a lot of high-tech company headquarters such as Amazon and Expedia and I’ve heard that Bill Gates has poured huge amounts of money in investing in health care programmes in the city,” she said.

In 2014, Yan splashed out US$390,000 for a 1,300 square foot townhouse in downtown Seattle. The market price surged to more than US$600,000 in 2016 after Amazon opened a new office in the area.

Yan’s current tenants are a French couple who both work for Amazon. The monthly rental of US$ 2,600 generates an 8 per cent return annually.

By contrast, in the top two mainland cities of Beijing or Shanghai, the yield is only 2 per cent.

Yan then bought a 200 square foot mini apartment in the southern Japanese city of Fukuoka and made a second investment in Seattle in November 2016.

As a member of the middle-class, Yan said she can’t afford luxury properties, but instead has focused on cheaper properties with prime locations in smaller US cities.

“Many more Chinese today have worked, studied or travelled to other countries than was the case five years ago,” said Charles Pitter, chief executive of Juwai.com, one of China’s biggest international real estate portals.

In the US, Seattle replaced San Francisco as the third most viewed market on Juwai.com in the first quarter of 2016, followed by Houston and Las Vegas.

Over the past 12 months, East-West Property Advisors, a platform that connects Chinese buyers with US realtors, has seen more than 30 per cent of all inquiries for cities other than New York, San Francisco and Los Angeles.

“Chinese buyer interest in non-traditional destinations is one sign of their growing comfort with overseas markets. It reveals a group of more sophisticated investors who are willing to look at opportunities further afield if they offer good investment fundamentals, better entry prices or less tangible benefits like lifestyle advantages,” Pitter said.

David Ji, head of research at real estate consultancy Knight Frank, Greater China, said Chinese investors have gradually bid farewell to “blindly” investing in popular projects or focusing only on Chinese developers’ overseas projects, because of the abundance of real estate information available.

They are now good at tapping various channels to gain knowledge of foreign properties, Ji said.

However, the huge surge in Chinese buying of offshore real estate amid worries of currency weakening has caught the attention of the Chinese government.

Over the past few years Chinese citizens have dealt with significant restrictions on money transfer which only allow them to convert a maximum of US$50,000 per person per year.

“The difference is that since January [2016] the Chinese foreign exchange regulator has been more active in enforcing this policy than ever before,” said Sam Van Horebeek, a director at East-West Property Advisors.

“As such, our team has seen a significantly longer time before purchase transactions of US properties are closed,” he said.

Still, agents say they haven’t seen any decline in buying inquiries on overseas properties. In fact, the numbers have increased.

“What’s for sure is that I won’t buy any more properties in China,” Yan said, “ The experience was just too bad – dishonest agents, house quality problems, all headaches,” she said.

Yan said she is not worried about money transfer issues as her family has already opened bank accounts in Hong Kong and she can also pledge existing properties as collateral for refinancing – or even tap underground banks.

Despite spotting the investment opportunity in London after the slump in the pound, Yan is not in a hurry. “The most important thing is to find a reliable agent. I am still studying it,” she said.