It has been a busy summer for property broker Steve High. Although the US property market remains dismal, he told the Wall Street Journal, he’s busier than ever thanks to a flood of Chinese buyers. They now account for more than half of his showings in Newport Coast in Orange County, California, up from a very small handful two or three years ago.
For some time now, cash-rich Chinese have been putting their wealth into property overseas. The US, Australia, Britain and Canada are the leading choices, although Japan – said by many to be at the bottom of the market cycle – is also a popular destination, analysts say.
To court the growing number of homebuyers, developers have been marketing their projects in Shanghai and Beijing. CB Richard Ellis has set up a special arm to help Asian buyers purchase homes abroad. China’s biggest real estate website, Soufun, has also been bringing Chinese investors to tour Western cities for the last two years, says Reuters.
“The purchase restrictions in China drove them overseas, while they look for investments to counter inflation,” said Mo Tianquan, founder and chairman of Soufun. “Some of them will buy homes with a view to better educating their kids, while others look for immigration options.”
While the idea of a second home is appealing, investing in overseas property markets can be a frustrating experience, says Oriental Outlook.
Huang Xin, a private investor in Wenzhou, learned the hard way. He bought a house in Southern California during the financial crisis, thinking it a bargain. “What I didn’t know is that every year in property tax alone I pay about $8,000; community management fees cost another $3,600; routine maintenance is another $10,000,” says Huang. “I used to find it odd that Americans mow their lawns on the weekends. But now I realise that it costs so much to hire a gardener! And worse yet, if you don’t take care of your lawn your neighbours could sue you!”
Similarly, Li Huaxing, who bought a foreclosed home in the US, now regrets his decision.
“When I bought the house I only saw it once. But over time I found out that the location wasn’t prime, and the house was very old and had a lot of problems. I ended up spending as much money refurbishing the house as it took for me to buy it.”
Li also complains that his tenant hasn’t paid rent for months. The property manager suggested Li take the tenant to court. But being thousands of miles away, “the rent doesn’t even cover the cost for me to fly over,” Li laments.
Huang also says he was disappointed with the low return on his investment.
“The yield on the house is no more than 5%, and the value of the house hasn’t gone up much either,” he says. But he is reluctant to sell because of the transaction costs and the capital gain taxes he would have to pay.
Li Mingyi, a property consultant, tells Oriental Outlook that a lot of his clients have been disappointed with their overseas investment.
“Most investors in China are still stuck in the speculative mentality. They are not long-term investors,” warns the consultant, adding that he expects the enthusiasm for investing overseas to subside.
“Compared with the skyrocketing prices in China, the gains in foreign markets are insignificant.”
Unlike individuals, Chinese firms have been more cautious about investing their cash in foreign real estate. Yes, some developers, including SOHO China, have been eyeing foreign projects, none have announced any major deals to date.
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