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Why the Chinese are Looking to the United States for Real Estate

NAR’s April 2016 real estate forecast stated that China’s slowing economy has caused its citizens to reevaluate investment strategies while prompting others to increase efforts to move money out of China. Faced with an individual $50,000 yearly cap on overseas investments, many send money through family and friends or via export businesses. Even the Chinese government’s recent threats to enforce the cap rules has been interpreted as a signal to increase efforts to get around the rules. Among the four investment motivations referenced as particular to Chinese buyers was security – to place money beyond the reach of the Chinese government into countries with strong property rights.

Why, I wondered, risk government enforcement in what appears to be an almost desperate desire to invest overseas given the prosperity of China? Then I remembered something from 2013.

I had been referred to real estate agent, Jiang, to assist her with investors interested in a commercial property. Her investors, running late to meet with us, gave us a chance to get to know each other since we had only met briefly for the first time the day before.

A native of China, Jiang presented as a seasoned facilitator going to and from China frequently to work with individuals and groups wanting to invest in or move to the Houston area. Articulate and forthcoming to my questions, she slowed her conversational pace considerably when I asked about differences between home ownership and private property rights here compared to China.

Unknowingly I had stepped on a sensitive topic for some Chinese citizens. After Jiang started and stopped in her attempts to explain, she finally waved it off saying “it’s whatever the government allows.” I was about to respond with … an 80% homeownership rate in China, what’s the issue?…when the investors showed up and that concluded the conversation. Afterwards we crossed paths socially and professionally but we never revisited that odd moment and eventually I just forgot about it.

Skimming online through international financial and business media it is obvious the ripple effects of Brexit dominates the headlines now, but I have noticed this year several articles about property rights in China. In particular property rights of middle class Chinese as opposed to the usual articles about mega property developments requiring mega million dollar investments by mega wealthy Chinese.

What has begun to stir national attention are the expiration of hundreds or more of 20 year land lease rights of citizen households in an area of eastern China. Confused? Did you know that the Communist party abolished land and property ownership in 1949 after China’s civil war?

Generally, rural collectives own agricultural property and the state owns urban land. Generally, Chinese homeowners do not own the land/property where their homes are located or sited. What’s causing the uproar is the high renewal land lease fee local government officials want homeowners to pay particularly since many purchased homes with the expectation that the leases would be transferred into full ownership.

In short, many Chinese homeowners aspire to individually own their homes and the property where their homes are located. Currently those homeowners have no effective property rights, nor an established legal process or recourse to assert those claims. You can find clarity on this emerging complex issue in Wikipedia – China property rights and in a concise article in Financial Times, China Politics & Policy, May 2016.

Took me three years to connect the dots. This year after purchasing a home in Houston, a young Chinese couple also bought a few acres in a rural area. I understood when the husband turned to me and said “My grandchildren will enjoy this some day.” I get it now, Jiang. I understand.

Ed Gonzales, CIPS
Berkshire Hathaway HS Anderson Properties
Realtor Emeritus 1976-2016

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