Chinese Real Estate Investors Increasingly Targeting Big Cities With Strong Education Programs

Over the past few years, the United States real estate market has experienced an influx of foreign investment, with Chinese buyers continuing to outpace all other foreign real estate investors. While there has already been a great deal of discussion and analyses regarding the multitude of factors driving Chinese investors to put their money in U.S. real estate, until recently much less was known about why these investors ultimately prefer one particular geographic location over another.

Recognizing the inherent value associated with developing a clear understanding of the various factors at play during the decision-making processes employed by foreign real estate investors, a number of recent studies have identified several key reasons behind regional real estate demand. As a result, the data collected through these studies has made it possible to create a projection system delineating the specific U.S. cities Chinese real estate investors are most likely to target over the course of the next year: Los Angeles, San Francisco, Boston, New York, and Miami.

The projection is quite revealing for a number of reasons, including the fact that even a cursory review of the characteristics common among the five cities highlights the factors Chinese real estate investors find most appealing. In addition to featuring the nation’s most prominent cultural centers and strongest local economies, each of the five cities listed in the projection is also known for offering outstanding educational opportunities to its residents.

Whether it is the proximity to so many of the elite colleges and universities located in the city of Boston or access to one of the many outstanding public campuses associated with the University of California, Chinese investors clearly value educational opportunities when selecting real estate properties (obviously, New York and Miami are also home to outstanding academic institutions as well).

Of course, there are other factors to consider beyond access to exceptional academic opportunities, as Chinese investors also weigh the value of U.S. investment properties relative to international properties. The combination of its excellent public school system and comparatively low — in terms of both national and international prices — property costs are among the primary reasons that Los Angeles is expected to be the top housing market targeted by Chinese investors over the next year or so.

Weather also plays an important role as Chinese investors attempt to identify the ideal region for a real estate investment, so it should not come as much of a surprise that warm-weather climates like Miami and Los Angeles are among the top options in the United States. A lack of year-round sunshine is not necessarily a deterrent, however, as each city’s economic outlook as well as its unique cultural makeup also figure prominently among Chinese investors seeking U.S. real estate.

With all else being equal, Chinese investors appear most interested in properties that range in cost from $300,000 to $700,000. Even though property values vary widely among the five cities most likely to appeal to Chinese real estate investors during the year that follows, a price range of $300,000 to $700,000 still ensures access to a broad array of options in the part of the country that each individual investor ultimately concludes as most appealing according to their own personal preferences.

Knock-on Impact of Low Interest Rates

8.4.16 | Knock-on Impact of Low Interest Rates – Rusty Tweed team

Record Low Yields

The yield on 10-year U.S. Treasuries is at a record low of 1.36% (7/8/2016). Its previous record low was in July 2012 when investors were nervous that Spain needed a full-blown bailout. The recent slide in rates has led to lower prices for bonds and a record high rate of investors buying U.S. Treasuries.

Analysts at LPL Financial think investors will continue to flock to bonds because they “remain more attractively valued compared to their overseas counterparts in Germany and Japan”.

Impact of Low Interest Rates on U.S. Stocks

 U.S. stocks are close to their all-time highs. They suffered a hit immediately following Brexit, but have recovered quickly. Companies like Johnson & Johnson (JNJ) – up 20% this year; and Kimberley Clark (KMB) – up 10% his year – have high dividends. This suggests that investors who might normally purchase bonds are instead buying riskier stock in order to get a greater yield and return.

However, whenever U.S. interest rates rise, stocks could take a hit. In addition, a strong dollar impacts U.S. trade as goods made in the U.S. look more expensive on world markets.

Knock-on Impact of Low Interest Rates - Rusty Tweed team

Impact of Low Interest Rates on the Real Estate Market

Low interest rates stimulate the real estate sector by making it cheaper for individuals and businesses to borrow money to invest in real estate.

 Mortgage rates are tied to Federal Reserve interest rates. When rates are low, as they currently are, a homeowner will pay significantly less across the duration of his/her mortgage for the same priced home. Cheaper mortgages create an incentive for people to buy homes.

Since U.S. interest rates on bonds and CDs are so low, investors and retirement funds are buying increasing amounts of real estate in order to get the rental income, which is significantly higher than bonds or CDs. In turn, this is pushing up rental properties valuations.

References for Knock-on Impact of Low Interest Rates – Rusty Tweed team:

http://money.cnn.com/2016/06/28/investing/treasury-bonds-brexit-flight-to-quality/?iid=EL

http://money.cnn.com/2016/07/05/investing/us-10-year-bond-yield-record-low/

http://www.investopedia.com/ask/answers/052815/how-have-low-interest-rates-affected-real-estate-sector.asp