Chinese Property Investment Hits $30 Billion In 2015 With New York As A Major Aim For Investors

It is very notable how Chinese buyers continuously invest in major western real estate markets. According to Knight Frank’s most recent research, the volume of transactions rose to $30 billion in 2015, which is double the levels of 2014. Paul Hart, the Executive Director of Greater China at the property consultancy firm states that “the key gateway” locations of Manhattan, London, and the Australian cities of Sydney and Melbourne all account for more than 40% of last year’s transactions.

According to the report, there is an increase of developers and insurance companies participating in major deals amongst Chinese buyers. Of the top twenty investors that made offshore investments in 2015, fourteen were developers and six were insurance companies.

Knight Frank stated that Chinese insurance giants made amazing transactions by the purchase of six out of the top ten deals worldwide. These include Anbang Insurance’s high-profile acquisitions of the prestigious and iconic hotel “Waldorf Astoria” for $1.95 billion and Heron Tower in London for $1.172 billion. Taiping Life Insurance bought a luxury apartment building at 111 Murray Street for $820 million. In the spirit of the Chinese Lunar New Year on February 6, 2016, the Empire State Building was lit up in red and gold.

Hart went further to describe this investment spree as the beginning of levels of investment by insurance companies and that these entities will become a dominant force for many years ahead. He also added that it is a positive thing for the Chinese consumers as it allows diversity of risks and freedom of choice in investment.

Since 2012, China permitted domestic insurers to invest in real estate for the first time and offered much more support in the following years, encouraging domestic employers to deploy more capital overseas.

According to the report, it is expected that Chinese property investment abroad will keep getting stronger in 2016 as a result of the economic problems in China which are pushing companies to diversify and invest offshore.

New York is on record as the No.1 destination for Chinese investment. The bulk of Chinese capital, at $5.78 billion, was spent in Manhattan - a five-fold increase from the previous year - and major Chinese institutions have dominated transactions in the Big Apple. In addition, there were moves made by small/mid-scale companies and developers to areas outside of Manhattan.

Knight Frank’s David Li, Director and Head of Research and Consultancy, and Paul Hart, Executive Director of Greater China, at a press conference on February 17, 2016 made it clear that these smaller companies are not finding favorable deals in Manhattan. So they are moving to the hubs outside of Manhattan where they achieve quick and easy access to properties at lower price points and favorable returns.

From the perspective of specialists/experts in the industry, the effect of “tier-ing” has been observed only in the US market, stating that the US is a solid ground for smaller Chinese investors to build a profitable offshore exposure and investment.

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2015 Record Breaking Deals In NYC Real Estate

Have you noticed how real estate prices have been going up in New York City? Of particular note last year was a penthouse at One57 that went for a whopping $100.47 million. New York real estate brokers were thrilled with the results they achieved as they surpassed all pre-existing sales records. These outrageous price hikes occurred all across Manhattan.

The demand for New York luxury real estate has been strong and there are a lot of millionaires and billionaires out there. There are likely to be more noteworthy deals in the future as these big shot millionaires and billionaires seek homes that reflect their status. At the same time, big shot real estate brokers are hoping to make exceptional sales happen in places like 432 Park Avenue, 56 Leonard Street, 220 Central Park South, and 520 Park Avenue.

So, more about One57 – the sale of the 89^th and 90^th floors of this brash blue tower went for $100.47 million and ranks as the 7^th priciest in the nation. In February, Chen Guoqing, and his brother Chen Fang, owners of Hainan Airlines, acquired the whole of the 86^th floor for $47.37 million; and two months later, they bought the whole of the 88^th floor too. Many of the buyers in the building are said to be foreigners, particularly from China. Elsewhere in the city, Mr. Andrey Vavilov sold his penthouse in the Time Warner Center’s south tower at 25 Columbus Circle for $50.92 million, which surpassed that building’s former highest price of $37.5 million. These are only a few of the many such sales that took place. Stephen Griggs of British footwear fame bought an apartment at 35XV for the price of $17.26 million, and $52 million was paid for the penthouse at 21 East 61 Street.

Out of the top 5 sales of the year, two were co-ops. One of the two, the duplex at 834 Fifth Avenue, sold for $77.5 million. Before then, the highest co-op sale was $71.28 million – a duplex located at 740 Park Avenue. The second highest co-op sale of 2015 went for $67.5 million and was purchased by the same record holder. It was followed by a $35.4 million triplex that sold in early march. The most expensive townhouse in 2015 was sold for $37 million. The next most expensive was the town house that use to belong to Sarah Jessica Parker and Matthew Broderick which sold for $18.25 million. Also, one of the five founders of Facebook bought a property for $22.3 million, a four-story Greenwich Village townhouse. These were the records for 2015 – it remains to be seen if they will be matched in 2016.

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$45 Million Penthouse Split In Two

Currently there is a huge strain on the ultra high-end real estate luxury market in Manhattan. Condo prices are being scaled back, sales are slow and luxury developers are pumping the brakes. A developer of a new building had to split the building’s crown jewel in two because so few buyers are in the market for such a premium property. Why did the developer do that? Was this unit so big that buyers only wanted half of it? Or could it be buyers are not willing to pay the asking price? For whatever reason, this developer decided to split the mansion which was worth $45 million, and as large as 8400 square feet. The unit would have been split into three, but since development was already quite far along, it was only split into two.

In New York, sellers have been forced to retreat due to a glut of luxury high-rises and a slowdown in global markets. This is a bit unexpected, considering the fact that there were ground breaking records made in this same market last year when about 40 units of property, each at the cost of more than $20 million, were sold.

There will be quite an addition to the inventory this year as 5,126 newly built apartments will be added to the market. This is slowing the sale of luxury homes and luxury developers are responding; they are not rushing to develop new buildings, they are taking their time and being observant.

The economy is playing a big part in all of this. It is slowing down and as a result, foreign buyers are being scared off. China has experienced the country’s weakest growth in the past 25 years. Venezuela is considered one of the worst economies in the world right now. Brazil is experiencing a huge financial recession the likes of which they have not seen since 1930 and the oil market, the central bank, and the currency there, are roiling, volatile, and in a bind, respectively. Also, as a way of curbing money laundering, the U.S. federal government has decided to track all cash purchases that are more than $3 million. The government is also on the lookout for sales made under limited liability companies.

All hope is not lost as there are indications that the high-end real estate market might soon come back to life. But for now, in Manhattan alone, there are dozens of homes listed for more than $20 million. The paradigm shift, the splitting of a penthouse in two, the deep economic strain in different countries - all of these signs are very troubling. Could the overstuffed real estate market be buckling under its own weight? Is this the beginning of the end? These are the questions on people’s lips, but for now we’ll have to wait and see.

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The Best Time To Buy Luxury Property In The US Is Now

Now is a good time for international investors to buy U.S. real estate. This is because if they don’t buy now, it will only get costlier as a result of the constant strengthening of the U.S. dollar. An international buyer who is hoping to regain lost purchasing power in his/her local currency as compared to the dollar might be waiting in vain as the dollar keeps getting stronger by the day.

It is very unlikely that the dollar will lose power in the foreseeable future. The worst that is likely to happen is perhaps a pause of its strengthening ability. It might hit a soft patch, as it did just recently, and not strengthen for a short while. Experts expect that the US dollar will start strengthening again this year after hitting a soft patch recently. So when talking about purchasing power, no time is better than now.

Still on the subject of the strengthening U.S. dollar, we have certain countries whose currencies are not doing well compared to the U.S. dollar. Countries like South Africa, Brazil, Russia, Columbia, Argentina, and many others, have over this time period experienced at least a double-digit drop in the value of their currencies against U.S. dollar.

Notably, a lot of big foreign investors are more likely to invest in real estate abroad than in their own countries. Big buyers from countries whose currencies are not doing well compared to the dollar are investing in U.S. real estate. It is good business for them because it will bring greater returns in their local currency. Wisely, these foreign investors intentionally delay the sale of these properties seeing that the more they wait, the more their returns will increase in their local currency, due to the fact that dollar keeps getting more expensive.

It is important for foreign investors to always be prepared before going into any real estate deal. If you are contemplating buying real estate in the U.S, it is in your best interest to count the costs, consider your options, and involve a reputable and experienced financial adviser before making such a huge decision. These financial advisers know about the fluctuations in exchange rates and the dramatic and significant influence they can have on the value of foreign investments.

Having said all that about dollar getting more expensive, it is not the only reason real estate properties are getting costlier in the U.S. Ordinarily, the prices of these properties increase as the year goes by. Take Los Angeles, New York City or Miami for instance; a lot of foreign investors end up acquiring properties from these cities. On average, high-end condos grew by 5% to 15% in the last quarter of 2015. This has nothing to do with the strengthening power of dollar. This is just ordinary inflation. So, if you are looking to buy real estate, the sooner you act, the better.

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Effects Of Dollar Strength On New York Real Estate

The growing strength of the U.S. dollar against other currencies gives foreign investors the impression that the United States is a safe country, which in turn makes New York appear to be a safe haven to store wealth. As a global megacity, foreign investment has contributed significantly to the growth of the real estate market in the Big Apple. However, the recent increase in prices of real estate in New York will force some foreign investors to seek easy bargains and purchase properties in markets with prices lower than New York City.

Currency Rates

As a global currency, the dollar serves as a trading and reserve currency. The rise in the greenback has reduced demand in the New York real estate market as some foreigners are reluctant to purchase properties. With the strength of the dollar against other currencies, they may not be willing to lose money on currency conversion. The crash of Russian rubble against the dollar can push real estate in New York out of the reach of Russian investors. Since Russia is an oil-dependent country, the falling price of oil has resulted in the dramatic decline of the rubble. However, the crash has not been stopped even with the government’s effort to do so.

Likewise, the Canadians now find it difficult to get easy bargains due to rising currency conversion rates. Instead, Canadian vacation homeowners prefer to resell their properties to make a profit from the rising dollar rates. This has resulted in reduced demand for seasonal vacation homes. As the Chinese Yuan tracks the dollar closely, the Chinese investors are not affected by the rising strength of the dollar. With the dollar growing strongly against other currencies, investing in New York real estate will seem attractive to Chinese buyers.

Real Estate Market

Most foreign home buyers do not have the intention of maximizing profits from their properties. Instead, they want to preserve their wealth. These investors seek an escape from the economic fallout in their countries and they view real estate as the answer. However, the rise in the greenback seems to be weighing down the interest of foreign investors in New York real estate.

With the construction of luxury condominiums, there has been a boom in the Big Apple real estate market. As a result of the dollar appreciation, the prices of luxury properties have escalated. The real estate prices in Brooklyn and Manhattan have risen, with the latter being more expensive. High-priced condos and mansions which flooded the market now stay on the market longer with some finally being sold at a lower price. This pullback can be attributed to the wane in the purchasing power of foreign investors. An increased supply of properties has resulted from the reduced demand by international buyers due to the strengthening dollar.

However, wealthy investors such as the South Americans and the Chinese can take advantage of this situation to secure real estate properties. As the Chinese are not affected by the dollar gain, they have increased their purchases of properties in Manhattan.

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The Best Time To Buy Luxury Property In United States

New properties abound in the New York, Los Angeles and Miami real estate markets. There is an increase in the construction of towers aimed at foreign buyers and wealthy U.S citizens. There are brand new luxury condos in Manhattan and in Miami-Dade County (Florida), thousands of new condos are under construction targeted for Latin American investors. However, the purchasing power of international investors, who led to the increase in the supply of real estate properties in the first place, has lessened. This situation is really hurting the real estate market as sales of homes have slowed down in cities across the United States.

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Listed properties are staying on the market for a longer period before they are purchased, as the few buyers who are available are taking more time to make deals. A decrease in the demand for second homes has resulted from the rising strength of the dollar and the current weakness in the economies of foreign countries. With the flooding of the U.S. real estate market with properties and the existence of few buyers, homes are sold at prices lower than the listing price.

Exchange Rates

The rising of the dollar against other currencies has definitely affected the U.S. real estate market. Russians who previously contributed to the surge in the demand for luxury homes in New York and Los Angeles and who purchased high-priced properties in Miami and Manhattan were the worst hit. The decline of the Russian currency is as a result of the fall in oil revenue. With the current dollar rates, Russians are being prevented from purchasing luxury homes in United States. The pound has fallen 7.8% against the dollar while the euro lost 15%. The peso plunged 21% as Argentina struggles to offset its foreign debt while the Russian rubble tumbled 48%.

Even as the current exchange rates will limit the purchasing power of some foreign buyers, wealthy investors such as Chinese buyers will be attracted to invest in the U.S. real estate market. The Chinese have invested almost 5.9 billion dollars in Los Angeles real estate, and are still purchasing homes in California. However, the surge in the supply of properties may lead to the adjustment of their prices, resulting in the best time to invest U.S real estate.

Real Estate Market

Despite the current dollar rate, buyers are obtaining loans to fund their purchase of luxury homes. New York, San Francisco and Los Angeles are the top three U.S cities that are currently experiencing increased investment in the real estate market. As the U.S does not limit sales of real estate to its citizens, foreign investors are welcomed into the market. Investors can resell purchased property later at a higher price for profit or rent it out to earn income.

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