US Housing Fire Sale Not a Good Enough Deal for Chinese Buyers
CSC staff, Shanghai 10 December 2008
“4 rooms/3 bath, built in 1984, 1719 sq ft, management fee $130/month, central air-con, vent, light, room and bath down, 3 rooms and 2 baths up, very spacious master bedroom with independent bathroom, sell at $ 460,000.” Many such advertisements for houses in the United States appear on SouFun, a Chinese real estate website, tempting Chinese consumers with a bit of extra cash and a taste for roomier life in the States.
According to the current exchange rate, the prices of these houses run in the two to three million yuan range, very reasonable for buyers who cannot grab onto anything quite so spacious in Beijing or Shanghai for that kind of cash.
A delegation organized by SouFun will set out to the United States in the coming mid-January, paying visits to San Francisco, Los Angeles, Las Vegas and the like. According to the itinerary, the delegation will be shown around houses by local real estate brokers, and buyers will be able to pick one up if the fancy moves them.
According to a December 7 report in the Los Angeles Times, in recent months Chinese delegations have flocked to the US to buy houses. “Chinese delegations with full wallets shuttle to various U.S. communities by Hummer and Lincoln ‘Navigator’ to hunt for houses and other low-cost products.”
The problem is this is not by a stretch the most worthy investment Chinese punters could be making, in the United States or out.
“It is not reasonable for ordinary Chinese people to purchase houses in the U.S,” an insider in the domestic real estate industry points out.
First of all, these Chinese buyers are foreigners in the US without any local credit, and cannot get a mortgage from a US bank. That means they must pay the total price for the house in cash when they buy it.
Second, even if they take possession of the house, they cannot live in it, or in the States for that matter, without right of abode or a green card. In US law, houses bought by foreigners are only for personal use and not for rental. The insider did point out that for foreigners with right of abode and planning to reside in the US there is a real demand for houses.
Anyway, now is not the right time to invest in US real estate. The market has not hit bottom and housing prices are still in decline. Hou Zhenhai, an overseas market analyst for China International Finance Corporation, forecasts that there is still about 15% to 20% decline room for the U.S. housing prices. This means that investment now will face potential losses.
“And even if the housing market reaches bottom, it is not at all certain when prices will begin to rise again. Based on historical experience, US housing market fluctuation usually lasts for a long term,” says Pan Weijie, the director of investment for Luck Investment in Shanghai. “It is not a wise option to invest in the US housing market now, because there are so many alternatives.”
SouFun has repeatedly declared that the delegation is not going “bottom fishing the U.S. housing market” as has been rumored by critics. Liu Jian, SouFun’s chief operating officer, says that according to applications received, about 60 percent of the applicants are real estate professionals. Their main purpose is to study the status quo of the US real estate market and the impact the subprime crisis has had on it.
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US Housing Fire Sale Not a Good Enough Deal for Chinese Buyers
CSC staff, Shanghai
10 December 2008
“4 rooms/3 bath, built in 1984, 1719 sq ft, management fee $130/month, central air-con, vent, light, room and bath down, 3 rooms and 2 baths up, very spacious master bedroom with independent bathroom, sell at $ 460,000.” Many such advertisements for houses in the United States appear on SouFun, a Chinese real estate website, tempting Chinese consumers with a bit of extra cash and a taste for roomier life in the States.
According to the current exchange rate, the prices of these houses run in the two to three million yuan range, very reasonable for buyers who cannot grab onto anything quite so spacious in Beijing or Shanghai for that kind of cash.
A delegation organized by SouFun will set out to the United States in the coming mid-January, paying visits to San Francisco, Los Angeles, Las Vegas and the like. According to the itinerary, the delegation will be shown around houses by local real estate brokers, and buyers will be able to pick one up if the fancy moves them.
According to a December 7 report in the Los Angeles Times, in recent months Chinese delegations have flocked to the US to buy houses. “Chinese delegations with full wallets shuttle to various U.S. communities by Hummer and Lincoln ‘Navigator’ to hunt for houses and other low-cost products.”
The problem is this is not by a stretch the most worthy investment Chinese punters could be making, in the United States or out.
“It is not reasonable for ordinary Chinese people to purchase houses in the U.S,” an insider in the domestic real estate industry points out.
First of all, these Chinese buyers are foreigners in the US without any local credit, and cannot get a mortgage from a US bank. That means they must pay the total price for the house in cash when they buy it.
Second, even if they take possession of the house, they cannot live in it, or in the States for that matter, without right of abode or a green card. In US law, houses bought by foreigners are only for personal use and not for rental. The insider did point out that for foreigners with right of abode and planning to reside in the US there is a real demand for houses.
Anyway, now is not the right time to invest in US real estate. The market has not hit bottom and housing prices are still in decline. Hou Zhenhai, an overseas market analyst for China International Finance Corporation, forecasts that there is still about 15% to 20% decline room for the U.S. housing prices. This means that investment now will face potential losses.
“And even if the housing market reaches bottom, it is not at all certain when prices will begin to rise again. Based on historical experience, US housing market fluctuation usually lasts for a long term,” says Pan Weijie, the director of investment for Luck Investment in Shanghai. “It is not a wise option to invest in the US housing market now, because there are so many alternatives.”
SouFun has repeatedly declared that the delegation is not going “bottom fishing the U.S. housing market” as has been rumored by critics. Liu Jian, SouFun’s chief operating officer, says that according to applications received, about 60 percent of the applicants are real estate professionals. Their main purpose is to study the status quo of the US real estate market and the impact the subprime crisis has had on it.
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