Chinese buyers have been snapping up luxury real estate at record prices in the United States and Canada for a number of years. Given that China is now in a state of economic upheaval, though, I am beginning to question whether this will have an impact on luxury real estate sales in the future. Let’s look at the data.
The net worth of luxury residential real estate in the U.S. has consistently risen over the last 18 months. The most recent data shows an 8.3 percent increase in the second quarter of 2015. Over the same duration, demand for luxury real estate in Canada also rose. Sales of condominiums over $1 million grew by 56 percent, attached family homes by 48 percent and detached single-family homes by 20 percent.
The rise in demand in both the US and Canada can be attributed to a number of factors, including lower home loan interest rates, a healthier job market and foreign investors. In fact, Chinese buyers are the third largest segment of HNW (High Net Worth) homeowners in the U.S.
In 2013, Chinese buyers accounted for about 18 percent of $68 billion in foreign home purchases in the United States. Today, Chinese buyers are classified as the one of the largest foreign purchasers of property in the United States and spend the most money on real estate.
Similarly, sales of luxury real estate to Chinese investors over the last 12 months in Toronto, Montreal and Vancouver have jumped. During the first half of 2015, sales of Vancouver properties priced over $4 million increased by 71 percent, and sales of properties priced between $2 and $4 million increased by 52 percent when compared to 2014 figures.
What I find really interesting are the record prices. For existing property, Chinese buyers paid a median of $520,000 per home, whereas U.S. buyers paid a median of just $199,000 and Canadian buyers a median of $212,000.
China’s economic woes have been compounded since the nation devalued its currency in August. The recent stock market crash also wiped almost $10 trillion from the international market. This hurt many Chinese investors and made many economists question whether China’s forecasted growth rate of seven percent is accurate. Experts now believe that this estimate was inflated and that a growth rate of four to five percent is more accurate.
In addition, there are strict laws that prevent Chinese nationals from transferring more than $50,000 into a foreign bank account within one year, so many Chinese buyers have resorted to using cash on most occasions.
The Chinese stock market has lost 45 percent of its value since June 2015. The country is transforming from one that produced cheaper exports to one that’s being driven by the middle class, and this is where many developing nations have failed.
In terms of buying luxury real estate, though, little is expected to change. Sure, some Chinese investors have been hurt by stock market losses, but many shifted their investment tactics toward foreign real estate before they were hit by losses. Others will be driven to invest in luxury real estate to escape the volatility of their share market.
This is good news for sellers of luxury properties in the U.S. and Canada. While the buyer pool may have fewer sharks in it, the ones that are still there are hungry to put their money into land and property and keep it out of the local stock market. They still see real estate as a stable investment and are ready to circumvent their own banking laws to pay premium prices.