Chinese buyers dropping out of US housing market

Estimates from Chinese real estate website Juwai.com reveal that US home sales to Chinese buyers are likely to drop to an eight-year low by next March, as the trade war between China and the US continues.

Juwai is China’s largest international property website, hosting more than 2.5 million listings both inside and outside the Great Firewall, China’s internet censorship mechanism. The site estimates that US home sales to Chinese buyers will fall to between $10 billion and $12 billion in the year ending March 2020 based on its enquiry and buyer data as well as feedback from industry partners.

While that drop represents less than 1% of the $1.6 trillion worth of US homes sold annually, it is down from the $13.4 billion reported for the year ending in March 2019 by the National Association of Realtors and an even bigger drop from more than $30 billion reported in both 2017 and 2018.

“The Trump administration’s tariffs, aggressive rhetoric, targeting of Chinese graduate students at US universities, and new visa red tape have all hurt Chinese demand,” Juwai’s executive chairman, Georg Chmiel, told Reuters.

Chmiel, a Malaysian-based German tech entrepreneur, said that worries over US visas and the desire to diversify investments had spurred a collapse in sales to Chinese buyers after a five-year surge. The weakening Chinese yuan is also a factor; after a decade of gains against the US dollar, China’s yuan currency has fallen 11% over the last 18 months, capped by a devaluation last month that was widely seen as a political move in the trade war and which added to buyers’ concerns.

“With the trade war going on, it’s easy to imagine a scenario in which you might be forced to sell or your investment might otherwise lose value,” Chmiel said.

For Chinese customers, he added, US properties served as financial investments as well as potential homes for themselves or for their children who were currently studying or working in the United States—or that they hoped would do so in the future.

Luxury homebuilder Toll Brothers and the second-largest builder in the country, Lennar Corp, have already seen the impact. Toll Brothers has noted sluggish sales in California, which is the main target for Chinese buyers and accounts for around 30% of its business. Lennar Corp attributed their soft sales in both California and the western region, which accounts for more than 40% of sales, to the drop in Chinese demand.

Gay Cororaton, a senior economist at the NAR, told Reuters that a slowing Chinese economy and the dollar’s strength were likely to keep pushing down Chinese buying, particularly in prime markets such as California.

“Chinese buyers form a significant portion of international home sales in California, where home prices have been increasing steadily, and that has been one of the factors acting as a deterrent for home purchases, when the yuan has declined,” she said.

Instead, she said that buyers might look for properties in areas that are less expensive than California, such as Texas and Seattle. As a result of this movement, there may be downward pressure on prices in California.

Buyers are looking at other areas, and markets that have strong economies and relative affordability are benefitting from the extra attention.

Dean Jones, principal and owner at Seattle-based brokerage Realogics Sotheby’s International Realty told Reuters that Seattle was “wooing” international buyers with properties that were selling for as little as half the price of real estate in San Francisco or Los Angeles.

Chinese investors are the largest group of foreign homebuyers, and have been since 2013. Canadians were the largest group of foreign investors from 2010-2013, and although they have been the second-largest group in years since, their numbers have also decreased since 2017, when they accounted for $19 billion. Between April 2018 and March 2019, Canadians accounted for $8 billion of the $1.57 trillion in existing home sales.