Chinese Investment in U.S. Real Estate Poised to Grow Substantially, New Report Projects

(L to R) Wendy Cai-Lee, Beth Fisher, Kai-yan Lee, John Liang, Arthur Margon, and Orville Schell discuss the implications of Chinese investment in U.S. real estate. (1 hr., 20 sec.)

Last year, Chinese citizens spent $28.6 billion on homes in the United States — nearly triple the amount in 2010, and $8.5 billion on commercial real estate — a 15-fold increase over 2010. But this growth is likely just getting started, according to a report issued on Sunday by Asia Society and the Rosen Consulting Group.

“This wave of investment is coming from diverse sources in China,” said Arthur Margon, a partner at Rosen Consulting Group and one of the authors of the report, titled Breaking Ground: Chinese Investment in U.S. Real Estate. “But that's really a small piece of the potential investor universe.”

As China’s economy has begun to slow in recent years, Chinese institutions have increasingly been looking abroad for investment opportunities — a trend that has intensified since China’s currency, the renminbi, began to devalue in 2014. At the same time, wealthy Chinese individuals have set their sights on foreign housing as a perceived check against political, social, and economic uncertainty in China. Real estate can also enable immigration through the EB-5 Immigrant Investor Program, which grants permanent residence to foreign nationals and their families who invest at least $500,000 and create or preserve 10 full-time jobs in the U.S.

Cumulatively over the past five years, Chinese citizens in the United States have spent an estimated $17.1 billion on commercial real estate and $93 billion on homes. The report projects that combined Chinese direct investment in existing U.S. commercial and residential real estate could top $218 billion between 2016 and 2020. Margon says that much of this growth will come from new sources in China that haven’t yet tapped their investing potential. “For example, the largest [Chinese] insurance companies have been looking [at real estate], but haven't yet been fully engaged,” he said.

The flood of Chinese real estate investment has yielded mixed reactions within the United States. Since 2010, average American home prices have increased by 14 percent. In some cities with large Chinese populations, the increase has been even steeper. San Francisco, for instance, has seen a nearly 50 percent increase during that period, leading to some resentment that Chinese are driving up housing costs.

Margon says that Chinese are “part of, but not really driving” the price increases. Overall, he says, the rapid growth of Chinese investment in American real estate has so far been very good for the U.S. economy. “Chinese institutions have been important in funding development while the U.S. banking system has been recovering from the Great Recession,” he said. “There have been very few negatives so far from this wave of capital directed at the property sector.”

Furthermore, the Breaking Ground report estimates that 200,000 American jobs have been created or preserved by Chinese investors through the EB-5 program (based on the number of Chinese recipients multiplied by the number of created jobs needed to qualify for the visa). Margon says that, based on interviews with affected Chinese and American business people, demand for the visa would be minimally impacted even if the $500,000 investment requirement were raised by several hundred thousand dollars. “The program would continue to be a significant source of capital for property sector,” he said. “Lowering the number of visas would have the opposite effect.”

The report warns that a short-term “speed bump” in Chinese overseas investment should be expected due to economic turbulence and a likely increase in capital controls in China. But it notes that the long-term investment drivers remain: strong U.S. demand for capital, a growing pool of increasingly wealthy Chinese investors, a $1.6 trillion Chinese insurance industry that’s invested only a fraction of funds available for real estate projects, and new Chinese investment tools like private equity funds.

In the above video, see Arthur Margon in discussion with other real estate and investment experts about Chinese investment in American properties.