After enjoying years of stability, the Chinese economy is facing it’s own share of volatility. Many of the problems facing the country have echoes in the problems that that United States faced eight years ago in 2008 before our own financial woes. For more on what this means, industry magazine Multi Housing News (MHN) sat down with Teles President & Founder Peter Hernandez, as well as a few other Teles agents who are positioned to weigh in with expert analysis on the subject.
Right up top, the main takeaway is that as bad as a fluctuating overseas economy sounds, it’s no reason to panic. In fact, it could be a good thing in the long run. Hernandez explains, saying “We are expecting increased Chinese investment as the flight of capital is to the quality and stability found in the U.S. real estate markets.” Amy Hsueh expands on the idea, adding “Chinese clients are more determined than ever to diversify their assets out of China…Since real estate investment has always been considered a safer and stable choice against all other forms of investment, purchasing a home in the United States seems like a perfect choice for the Chinese investors at the moment.”
Michele Chiu is a bit more cautious, however. “The rich in China are probably a little less rich now compared to just a few months ago due to the recent downturn. This may not translate into a shift in lifestyle but for many investors, it will play a huge role in the amount of liquid cash they have to invest in sectors such as the U.S. real estate market,” Chiu says. “Generally speaking, this means less cash flowing into the housing market and a likely adjustment period for the next two years.”
Moving away from single family homes, what does this mean for multifamily properties? Hernandez sees Chinese investors increasing investment in multifamily properties as a safe bet, adding “Traditionally though they like mixed-use projects and hotels and for the super wealthy, it must be iconic and prestigious.”
Stephany Chen sees an upside for renters in the midst of multifamily investment. “Investors’ cash flow follows the capital market. By developing more multifamily, the rental market will become more affordable.” Michele Chiu sees a more tempered impact, while acknowledging that while Chinese buyers have recently graduated from single family to multifamily purchases, “many new and ever-changing financial regulations between the two countries make it more and more difficult for the Chinese to leverage the cash needed to purchase large multifamily commercial assets.” Chiu finishes, saying “Overall, Chinese investors do not hold enough shares in any specific area of the multifamily sector prior to their market collapse to make a huge impact in this specific marketplace.”
Stepping back for a moment to take a look at the current state of Chinese investment here, Hsueh quotes a report from the National Committee on US-China Relations and Rhodium Group that logs Chinese investment at nearly $48 billion between 2010 and 2014 alone. Hernandez, citing the fact that the Chinese government is loosening restrictions on investments overseas, expects that this may increase, saying “China recognizes the need to open its commerce and participate more fully in world markets. They are fascinated with the entertainment industry, real estate and technology, and have invested heavily in such. They are participating more globally in sports, particularly in soccer…Overall they recognize the advantages of opening up and being less insular.”
To dial in on what this means locally, MHN asked the participants to define the sectors and markets in which Chinese investors were most interested in pursuing new development. “They are beginning to develop in the U.S. They love downtown Los Angeles, Beverly Hills, San Francisco and San Gabriel Valley,” Hernandez said. “They are also looking to develop in New York. For instance, Teles is the West Coast representative of the prestigious 118 E. 59th St. in Manhattan. Hsueh adds “Chinese buyers are focusing on areas with highly ranked school districts. Here in southern California, Irvine and Arcadia are amongst those cities that are academically sought after.”
Even with the volatility in the Chinese economy at the moment, there doesn’t seem to be overt cause for concern. And, as seen above, some predict that the news may be good overall for investment here in the States and in Southern California in particular.