A handful of years ago, you could be forgiven for thinking that the Chinese were taking over the U.S. real estate market.
Reports abounded of Chinese buyers pouring tens of billions of dollars per year into American property, seeking a safe haven for their wealth by snapping up everything from luxury condos in downtown Los Angeles to colonial homes along the affluent North Shore of Long Island, New York.
The COVID-19 crisis brought much of that activity to a standstill, but Chinese investment actually peaked around 2017 and started to slump long before the virus entered the scene. Thanks to increased regulatory scrutiny and a web of cross-border restrictions, Chinese purchases of American homes may not recover anytime soon. That’s probably good news for the U.S. housing market.
Under current regulations, title insurance companies must identify the individuals behind shell companies that make all-cash purchases of residential real estate in 12 major metropolitan areas if the transaction exceeds $300,000. FinCEN seeks to expand these reporting requirements as part of a broader crackdown on money laundering and other illicit activity.
“Our real estate markets are at risk of becoming a safe haven for criminals, kleptocrats and others seeking to park corrupt profits,” Deputy Secretary of the Treasury Wally Adeyemo said last December, when the proposed rule change was first announced.
Chinese homebuyers (and those from Hong Kong and Taiwan) also tend to pay in cash far more often than American homebuyers and to buy pricier homes than other foreign homebuyers, so stricter rules on large cash transactions would create yet more friction for a group already shackled by domestic capital controls.
By 2019, annual investment by this group—which NAR defines to include buyers from Hong Kong and Taiwan—had tumbled to $13.4 billion. The COVID shutdowns slashed that number to $4.5 billion in the year ending March 2021—a plunge of 61 percent from the previous year. Chinese-speaking buyers remained the leading foreign homebuyers measured by dollar amount, a title they’ve held since 2013.
Some hoped that the U.S. government’s lifting of COVID-era travel restrictions on dozens of countries, including China, last November would bring eager Chinese homebuyers back to the U.S. market. But the crusade against a respiratory virus continues to strangle global travel.
It’s easy to exaggerate the impact of foreign homebuyers, who at last count made up only 2.8 percent of America’s nearly $2 trillion in annual home sales. Still, the long retreat of Chinese house hunters removes a potential source of pressure on the overheated U.S. market, where home prices have surged more than 30 percent since 2019 and inventory is at a record low.
For the time being, America’s would-be homeowners have bigger worries than competing with cashed-up Chinese buyers, but conditions could worsen if Chinese capital surges back.
“From an affordability standpoint, these neighborhoods are less accessible to existing U.S. residents as prices rise due to foreign investment,” the authors noted.