Tue, Mar 12, 2013
Kevin Brown never knows when his Chinese lessons will come in handy. As he walks into a Bloomingdale’s in downtown Manhattan, the New York broker with Sotheby’s International Realty says ‘xiexie,’ Mandarin Chinese for ‘thank you,’ in response to a greeter who has handed him a red envelope, a traditional gift given during the Chinese New Year holiday. “2013, year of the snake,” Brown beams as he begins to shop.
In the year of the snake, high-end department stores are not the only businesses making special efforts to court Chinese customers. New York real estate brokers are also doing whatever it takes to accommodate Chinese homebuyers, who, according to new data, are seeking out properties in the city in greater numbers than ever before.
Brown was recently connected to a customer based in Hong Kong. As he led his new customer on a tour of the New York property market, the customer explained that she was buying an apartment for her daughter, who would attend either Columbia University or New York University.
Brown relates, “I finally asked her, ‘How old is your daughter again?’ And she said, ‘Oh, she’s two.’”
Eventually he helped his client close a deal for around $6.5 million on an apartment at One57, a high-rise residential building on West 57th Street.
A Feb. 12 report released by CoreLogic, a property information provider, found that the New York Home Price Index (HPI) for December 2012 was up 7% compared to the same time in 2011. “Chinese people usually buy when things are rising, so the increasing prices would only stimulate more purchasing,” explained Liu Jian, chief operating officer of SouFun, a popular Chinese real estate information website.
According to Hurun Research Institute , more than 2.7 million people in China have a net worth of US $1 million or more, and about 30 percent of them are already investing in international properties.
As Chinese buyer demand broadens from super luxury properties to all levels choices, more middle-income Chinese investors who want to preserve their wealth in a more mature and stable market opt to apply for mortgage when they are purchasing, the same as what they do in China.
A survey of 12 million potential Chinese buyers released earlier this month by SouFun.com showed that the United States is the top choice among Chinese buyers for overseas real estate purchases. Forty-four percent of respondents listed immigration as their main purpose for overseas real estate purchases, followed by education at 25 percent, and investment at 23 percent. Top real estate purchase destinations in the U.S. are Los Angeles, New York, San Francisco, Washington, D.C., and Boston, respectively, with over 60 percent of those surveyed stating overseas purchasing budgets of more than US $500,000.
Brown estimates that Chinese referrals made up 12 percent of his personal business three years ago, reached 20 percent last year, and today account for about a third. Last month, he sold two apartments at 72 Berry Street in Williamsburg to Chinese investors for just under a million dollars each. The apartments’ original asking price was $895,000 each.
Gao Yiqiu, a 21-year old university student from central China’s Sichuan province, lives in a one-bedroom apartment at 99 John St., an 80-year old landmark located a few blocks away from Wall Street.
She rented a studio in September 2010 when she came to Pace University for undergraduate studies. One month later, her family bought the apartment in the same building. The total cost was around $800,000, which she says her family would have paid for in cash. But as financing becomes an increasingly available option for Chinese buyers, some like Gao and her family are opting to take advantage. “My mother wanted to keep more cash flow to do other investments, so we chose to do a mortgage,” Gao said.
HSBC was the exclusive mortgage provider for clients of this building, offering a minimum of 15% down payment limit, lower than the average 20% in New York housing market. Gao’s family paid $200,000 in cash and chose floating interest rate for mortgage, with an initial interest rate of 3.875%.
Management is $450 every month and property tax is around $660 if equally divided into 12 months. Gao said the apartment is now worth more than $900,000, an appreciation of more than 12 percent in a little over two years. She is thinking about renting it out after she graduates next year. “Because the rent will offset the mortgage, which is about $3,000 every month” she said. “Rent is between $3,200 and $3,600 for a similar apartment in this area now.”
At the time of Gao’s purchase, Ryan Serhant, a star of Bravo’s real estate reality TV show ‘Million Dollar Listing New York City’, was the sales director for 99 John St.
Serhant says that while financing is an available option for Chinese buyers like Gao and her family, stringent qualification requirements mean that cash is still king on the majority of their overseas real estate transactions. “Overall, most are still paying cash,” Serhant said. “As prices increase, those people who don’t pay cash do around 50 percent of financing, and they still have to be very wealthy, very qualified, bank-certified clients.”
“Inventory back in August, for condos and co-ops combined, was around 6,995 in Manhattan. On January 1, it dipped to 5975. 1,000 units came off the market for the quarter,” said Joseph Corda, an associate at Bellmarc Real Estate Company. “The rents are so high. Banks are lending again. People haven’t lost their jobs, and they have savings they’ve put away over the years. A lot of those sales are being driven by people in New York who just want to get out of the rental and get their own places,” he said.
Even as inventory decreases and prices increase in the New York market, “We are still seeing a lot of Chinese buyers coming through to buy anything with statistically proven appreciation rates,” says Serhant. He said 30 percent of the $70 million that his Manhattan-based company, Nest Seekers International, closed last month came from Chinese buyers.
“A lot of them would rather put money into property rather than put money into the stock market, even now as the stock market is continuing to rise, they still feel real estate is the best investment,” said Serhant. “The average price per square foot in the next twelve to eighteen months will be $2,000, which is still a discount compared to London and Hong Kong. So if you are a rich Chinese citizen and are looking for a way to diversify your investment portfolio in China, it’s more expensive to buy there. But here, it is still a bargain,” he said.
The amount of investment in the U.S. housing market from Chinese buyers last year was $9 billion, which ranks second after Canadian buyers among all international buyers, according to data released by National Association of Realtors.
SouFun’s Liu Jian confirms that demand for U.S. real estate is high among Chinese buyers, but says that there is still bottled up demand that has not yet made the leap to America. “A lot more Chinese have money, but don’t know how to approach the U.S. market,” he said.
Though majority of real estate buyers still come from Shanghai, Beijing, Shenzhen, Hong Kong, and Guangzhou, an increasing number of new buyers are arriving from smaller cities in interior provinces like Shanxi and Sichuan.
“We’re having more and more of the Chinese investors coming over, not from the major watering holes, but from outside of those cities. They don’t speak English, “said Brown. “These are folks who have saved every nickel, and now they’re out spending it. They want to spend correctly.”
“Ten years ago, it was East meets West, but now it’s West meets East,” said Brown, who began making periodic trips to China and taking Mandarin classes in order to better understand his Chinese clients.
“I’ll never ever be fluent in Mandarin,” says Brown, “but my purpose was to find out, ‘Are there things that Chinese are doing that limit the possibilities of a successful transaction?’ There must be things that we’re doing on our side that also limit the possibilities of success. ‘What are the things that will ruffle their feathers? What am I doing that will affect them negatively?’ That’s just what I found fascinating.”
“It’s not just numerology, you know, staying away from things beginning with the number 4. For instance, you’d think Central Park is the normal view that everybody wants but they’re not interested in it. Instead, they want southern exposure.” Brown said.
“If there is one characteristic of Chinese, they’re never going to overpay for anything. They’ve been at this a lot longer, for thousands of years, than we have,” he said.