Foreign investment over time in US residential real estate, especially in expensive markets such as New York City, California and Miami, have been driven by the premise that US real estate is a safe investment, the US is a good place to stash money and that an investor could collect profits from that investment due to consistent price appreciation.
Much of that premise has eroded this year. Current uncertainty in the real estate market with appreciation depreciating, sales slowing, anxiety of a possible recession, and the US imposition of tariffs has caused that erosion.
According to co-author of the National Association of RELATORS ® (NAR) annual Profile of International Activity in US Residential Real Estate Report, Gary Cororation, this erosion has been caused by a shift in consumer confidence as international policies and economics. Cororation said, “If you’re doing business in the US and you see the US as more stable and growing, then you purchase a house in the US. If you see lots of instability and uncertainty, you won’t purchase a house in the US.”
The numbers reflect this shift in consumer confidence due to uncertainly and instability. NAR indicated there was a -36% drop in foreign purchases for a total of $77.9B in 2019, down from 266,800 properties purchased valued at $121B in 2018. Take a look:
Year Props. Purchased Value of Pros. Chinese Investment
2019 83,100 $77.9B $13.4B
2018 266,800 $121B $30.4B
2017 284,000 $151B $31.7B
2016 214,300 $102.6B $27.3B
2015 208,900 $103.9B $28.1B
2014 232,600 $92.2B $22B
2013 192,500 $68.2B $12.8B
Note that Chinese investment in US residential properties dropped substantially, a -56% drop, from the last few years in 2019. This drop could be, according to Patrick Sisson of Curbed, the imposition of capital controls by the Chinese government limiting how much money Chinese investors could “sink in” to US real estate.
Another factor contributing to this decrease of Chinese investment into US real estate, both residential and commercial have suffered, could be changes in the EB5 visa program that provides visas for foreign investors. Formerly a $500,000 investment in US real estate “bought” a visa; now a $900,000 investment in US real estate is required for a visa.
Also remember that foreign investment in US real estate now is being spurred by Canadian snowbirds (one in five buyers in Florida are Canadian snowbirds), tech workers from India and Mexicans looking for investment potential in Texas, and to Chinese students who, according to NAR, represent 10% of all Chinese property investment in the US.
Despite the “feeling” that US investment in real estate may be losing some luster due to immigration debates, continued trade tensions and fears of recession, Georg Chmiel, executive director of Juwai.com, a Chinese language search portal for US real estate, told CNBC, “Many Chinese consumers feel we are entering a long-term period in which Chinese currency will steadily decline…they want to invest overseas to protect their wealth from losing value…Chinese buyers are probably the most motivated of all international buyers. For many Chinese, US real estate is a necessity, not a luxury.”
Corcoration puts a slight damper on this thinking by saying, “A bigger incentive for Chinese buyers may be to look to Canada despite the country’s strict controls on foreign investment because Canada is more welcoming to immigrants.”
Thanks to Patrick Sisson of Curbed for source data.