Bargain-hunting mainlanders are now seeking out the ultimate tourist memorabilia - they’re paying in cash for their slice of American real-estate pie. Andre Cooray reports
Have the now price-slumped suburban streets of the US - heart of the global real-estate landslide - become one of China’s top holiday destinations? Not quite, but in the mainland taking a property-buying tour of California is the latest, albeit unusual, trend to emerge from the current world economic crisis.
The mainland Chinese tourists do a bit of gambling at The Bellagio in Las Vegas or drop the kids off at Disneyland in Anaheim before going on a spending spree in the suburbs. Tailor-made real-estate tours take in houses priced from as low as US$200,000 (HK$1.5 million) to those that exceed US$1 million.
Foreclosed and discounted homes in the US cities worst hit by the market crash are number one on the itinerary. Records show that from January 2008 to September 2008 house prices fell in San Diego by 26.3 percent, in Los Angeles by 27.6 percent and in San Francisco by a whopping 29.5 percent.
What’s more, in California the number of foreclosure sales increased from the first to the second quarter of 2008 by as much as 63 percent. California is also one of six states listed by First American CoreLogic as having 60 percent of homeowners with mortgages higher than the value of their homes, putting them in the high-risk category for foreclosure. Nevada is also included on the list and is one of the targeted states for the property-purchasing tour groups.
So exactly whose doors are these Chinese house hunters likely to be knocking on for a discount deal? The worst hit US neighbourhoods tend to be located in the more remote suburbs, where there was an initial rush to build new houses and buyers were asked for zero down payment. It’s here that real bargains can be found on foreclosed homes.
That said, anyone planning to buy in the US is advised to have realistic expectations. If a home is on the market below the US$400,000 mark there is a reason for it. Anton Eilers, executive director for CB Richard Ellis Residential in China, advises that, “People who intend on purchasing foreclosed homes need to question why the property is distressed. Is it simply because the owners can’t make the mortgage repayments? Or is it because the quality of the development is not what it should be? If this is the case, there could be major construction problems. Also if buyers are planning to put it on to the rental market they need to find out if there is access to employment and educational facilities.”
Relaxed US visa rules have contributed to the popularity of these group tours. In fact, there are very few limitations in most states for foreigners wanting to purchase property. A drop in currency rates worldwide is an added incentive for these packs of bargain-house hunters, and interest is now spreading to other countries, notably Australia.
The companies offering group tours, which run for about two weeks, also arrange for hotels and transport. Some even claim to give their mainland clients the opportunity to learn more about American life before making their property purchases - while at the same time ensuring them that the neighbourhoods visited already home plenty of Chinese immigrants.
Eilers is not surprised by the interest in foreign market investment from the affluent hubs of Shanghai and Beijing. China has relaxed its overseas investment regulations, and its middle class is now enjoying increased personal wealth. “They will be looking to invest in foreign markets for immigration purposes and for their children who plan to attend college in the US,” Eilers says. Mainland Chinese families are more likely to be interested in homes situated near reputable schools and communities that fall into the higher price brackets.
On the flip side, could the US homes bought by cash-rich mainlanders turn out to be a real-estate white elephant? History shows that once property markets plummet, they can take a few years to recoup - and the current crash in the US has not even reached its recovery stage as yet. Prices are expected to keep falling till the end of 2010 or even as late as mid 2011.
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