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How To: Understand Dynamics of Chinese Investment in U.S. Real Estate

November 02, 2016 · The Miami Herald
Jesse Ottley
President of Development Division


Like any plant, growth of the Chinese Bamboo Tree requires nurturing – water, fertile soil, sunshine. In its first year, we see no visible signs of activity.In the second year, again, no growth above the soil. The third, the fourth, still nothing. Our patience is tested and we begin to wonder if our efforts (caring, water, etc.) will ever be rewarded.

What can we learn from the famous proverb of the Chinese bamboo as Miami brokers and real estate professionals?

Understanding Dynamics of Chinese Investment in U.S. Real Estate

China was the source in aggregate of at least $350 billion in U.S. real estate holdings and investments by the end of 2015, according to a 2016 report by Asia Society titled Breaking Ground: Chinese Investment in U.S. Real Estate.

This figure includes the direct purchase of real property and indirect investment through the purchase of agency mortgage-backed securities and provision of debt financing, among other channels.

Produced by Rosen Consulting Group, Asia Society’s comprehensive report examines a broad range of direct and indirect investment to compile what it calls the most comprehensive analysis to date of Chinese capital in U.S. real estate.

Among its eye-opening findings, the report projects that Chinese direct investment across existing U.S. commercial real estate assets and residential purchases, excluding new development projects, could total at least $218 billion, cumulatively, from 2016 through 2020.

Beyond 2020, it also suggests Chinese investment in U.S. real estate could accelerate further.

Interestingly, the report also points out that investment in markets outside the traditional U.S. gateway markets of New York, Los Angeles, San Francisco and Chicago is on the rise. An examination of the consulting group’s findings suggest that Miami is poised to become the most attractive investment opportunity among secondary markets for Chinese buyers.

What interests today’s Chinese buyer?

Globally diversifying their investments while seeking better yields in under priced markets is a key motivator for Chinese buyers. Aforementioned gateway markets have become over saturated, making elevated returns difficult to achieve. Simply put, Miami offers much lower prices than the traditional U.S. hot spots for Chinese buyers. For example, $1 million USD buys you 828 square feet in Miami, compared to 700 square feet in Los Angeles and 290 square feet in New York.

Education, emigration, and lifestyle also ranked as high priorities for these buyers, according to a 2016 report by the National Association of Realtors.

High net-worth Chinese may also view overseas real estate as a means to provide international opportunities for their children and a safe haven from political and economic uncertainty in China.

Similarly, real estate investment and ownership can potentially offer an expedited path to Chinese families who want U.S. residency for work and educational opportunities.

Poised for Rapid Growth

Miami, with its advantageous geographic location together with its infrastructure, access to trade, technology, communications, tropical lifestyle, thriving financial center and gateway status to the Americas makes it an obvious choice for both Chinese individuals and investment groups.

The one missing link? Direct flights to and from Miami and the Chinese mainland.

However, many signs suggest that direct flights are in sight.

The Miami Herald reported earlier this year that officials at Miami International Airport have said they hope to land a regular direct flight from Cathay Pacific or another airline within the next 24 months.

Over the course of the last 18 months, executives from our brokerage firm Cervera Real Estate have participated on various trade missions to Beijing, Shanghai and other key cities, in an effort to forge ties with government and business officials and lobby direct flights.

We predict the announcement of a direct flight from Guangzhou to Miami by a major Chinese airline before the third quarter of next year.

The City of Miami has also made significant strides in forging a relationship with China and the Far East. Over the last two years, slow but steady progress led by forward-thinking individuals and organizations have laid the foundation for rapid growth.

Among those, the Asian Real Estate Association of America established its Greater Miami chapter in September 2015. Since then it has become the fastest-growing chapter in AREAA. In another encouraging sign, Miami was selected as the host city for AREAA’s 2017 Global Luxury Summit, a three-day conference that brings together representatives from chapters around the U.S. to discuss best practices for the local and global Asian community.

New distribution channels for brokers and real estate professionals looking to do business with the Far East have also opened. Investorist, an Australian-based startup described as a “global MLS,” chose Miami as the home for its first US-based operation. It is currently China’s most popular paid brokerage platform.

The Miami Association of Realtors established a partnership with Chinese web portal Juwai.com, making additional resources available.

Earlier this year, our firm signed a marketing agreement with HomeLink, China’s largest real estate brokerage. We worked alongside the Miami DDA and Beacon Council to host a delegation including top executives and 17 top producers.

“Just look at this,” said Gene Shi, HomeLink’s president of international operations, as he gestured toward the shimmering waters of Biscayne Bay during their trip to Miami. “This is something you could never dream of, even for a millionaire in New York City. But this is a typical view for a citizen of Miami.”

The Tree Begins to Sprout

Finally, in its fifth year, the Chinese bamboo grew a staggering 80 feet in just six weeks.

As someone who has spent years forging relations with the China market, I know first-hand that the relationship requires patience and persistence.

As brokers, real estate professionals and ambassadors for the City of Miami, we must do our part to build the strong internal foundation to handle this sudden impending growth; a tremendous opportunity for our industry and community.

Encourage local government to get behind lobbying for direct flights, educate yourself on the Chinese culture, support the organizations like AREAA, and embrace our new friends from the Far East.

If you are interested in learning more about Asia Society's report on Chinese investment in U.S. real estate or you would like get involved with the Greater Miami Chapter of AREAA, join us tonight at Centro Rooftop Lounge from 5 to 7 p.m. for "The Art of Working with Chinese Investors." For more information on the event contact RSVP: AREAAGMiami@gmail.com

Jesse Ottley is the president of Cervera Real Estate’s Development Division. and member of the Master Brokers Forum. He can be reached at jottley@cervera.com.

A version of this story originally appeared in The Miami Herald.

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