Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Looks like the economy in China is driving even more of their people to invest over here.
An article I read said they’re being motivated by a weakening yuan, surging domestic housing costs and the desire to secure offshore footholds. The article’s author also stated that they’re venturing beyond their usual playgrounds in Sydney and Vancouver to lower-priced markets like including Houston, Texas.
It seems that Chinese buyers have a long list of reasons to flock overseas. The yuan’s slump is eroding their purchasing power, while returns on local financial assets, including stocks, bonds and wealth-management products, are shrinking as the $11 trillion economy slows.
Along with that, Chinese real estate has grown increasingly out of reach after a speculative boom sent domestic home prices to all-time highs. Residential property values in Shenzhen, Beijing and Shanghai all jumped more than 30% this year.
The author said that the difference now is that those traditional hotspots are starting to lose their appeal due to soaring prices and new measures to deter an influx of overseas money. And in Hong Kong, the government enacted a 30% tax on foreign property owners after Chinese demand pushed home values toward record highs.
So what are these buyers looking for?
Second-Tier Cities
Chinese buyers have responded by branching out to cheaper cities.
In the U.S., they’re increasingly searching for properties in Houston, Orlando and Seattle as the third-most viewed U.S. market on Juwai.com, a Chinese search engine for offshore real estate.
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One challenge for Chinese investors is getting money out of a country that caps individuals’ foreign-currency purchases at $50,000 a year. While that limit hasn’t always been strictly enforced, the yuan’s slump is prompting policymakers to clamp down.
This year, they’ve banned the use of friends’ currency quotas, curbed on the cross-border activities of underground banks and asked lenders to reduce foreign-exchange sales.
Still, alternative routes abound. Many business owners finance their homes through offshore trading companies, while some Chinese developers allow clients to pay for overseas units in yuan.
Foreign-currency mortgages also play a role, helping to fund more than 80% of China’s international property purchases, according to an estimate by Fang Holdings based on user searches and surveys.
Planning Ahead
“Where there’s a will, there’s a way,” said David Ley, a professor at the University of British Columbia who wrote a book on the flood of wealthy migrants from East Asia in the 1980s and 1990s.
This year’s purchases could be just the tip of the iceberg…
Chinese holdings of global real estate, including commercial properties, will probably swell to $220 billion by 2020 from $80 billion in 2015, according to Juwai.com.
As the first generation born after China’s opening in the late 1970s approaches middle age, many of them want an overseas base for family members to travel, study and work. Chinese parents with children at foreign schools have been a major source of demand, accounting for an estimated 45% of cross-border buying, according to Fang Holdings.
To demonstrate how crazy the demand is, the author wrote about a 33-year-old Chinese man who purchased an overseas luxury home for his future children, convinced they’re destined to attend one of the city’s prestigious universities.
The buyer shelled out $2.4 million for the property, unfazed by the fact that he’s single and it could be two decades before he has kids old enough for college.
How would you like to find a buyer like that?
Check our Juwai.com. Do it in Chrome and say yes to translate the page. You’ll be shocked at how many U.S. properties are listed there.
Happy hunting!
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Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.