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San Francisco: Even cold hard cash may not buy you a house

Due to the rapid rise in tech companies, San Francisco’s economy has experienced a sharp upturn over the last few years. Along with its economic recovery, the housing market has experienced major growth as well. Today citywide real estate prices sit 14.8% higher than they did 12 months ago. What’s even more remarkable is that in certain areas, the median sales price has rocketed. In Cow Hollow (a neighborhood near the famous Lombard Street), prices sit 179.5% higher than they did this time last year. That’s a whopping $1.975 million (15.3 million HKD) increase on average.

Surrounded by water on three sides, space is an issue in San Francisco. As a result, large demand that is not met with sufficient new construction has created a buying frenzy with local and international buyers competing for every kind of property. Luxury properties are snatched up quickly, such as luxury homes averaging sales with only 21 days on the market and luxury condos selling within 28 days on the market.



In many cases, plenty of potential buyers are making offers on the same property. In a recent case, a client of ours was trying to buy a charming original Victorian house in San Francisco. The property had 8 bedrooms and 3 bathrooms – in other words, a lot of upside potential. The property was close to UC Berkeley (one of the top universities in California) and would be able to generate a good rental income with a possible capitalization rate of 8 -10%. The original asking price was $989,000 USD, but the client offered $1,188,888 (nearly $200,000 above the asking price). Still, this cash investor offering more than 20% above the asking price was unable to buy the property. With 19 other investors bidding on the same property, her offer was only the 4th highest.

This is not an anomaly. There are many stories where both local and international investors in San Francisco cannot purchase property even with cash in hand. Homes are selling over 30% above the asking price in some cases, as many of the investors competing for purchases are flippers. These people are usually cash buyers who will renovate a house instantly in order to put it back on the market for a quick profit. After renovation, many of these homes look almost completely unrecognizable. The popularity of this type of investment has sparked the creation of several reality TV programs, where teams are pitted against each other in an attempt to get the greatest gains off properties in San Francisco.

The San Francisco market is hot with many clamoring for their chance to get a piece of the frenzy. However, it is important for buyers to understand the market and cooperate with a quality real estate agent in order to make the best purchases. As prices continue to rise, there is no downturn in site for the near future. Characterized by numerous spikes and falls, San Francisco is still quite interesting as a long term investment. Over the past 18 years, prices in San Francisco have risen at a rate of 7% year on year. This is above the national average and signifies a steady healthy real estate market for the Bay Area.

www.eastwestproperty.com