July 8, 2013

Follow The Money: Chinese Real Estate Purchases Surge In The United States

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“For Sale” signs are popping up across suburban Los Angeles this summer, as historically low inventories of available homes are exacerbated by surging demand for California real estate among cash-rich buyers from overseas, and especially from China.

Asian populations have gravitated to L.A. and Orange County neighborhoods such as Monterey Park, Arcadia, Rosemead, and Irvine for generations, but demand is now expanding to Beverly Hills, Santa Monica, Palos Verdes, Malibu, and Manhattan Beach… and all over the West Coast.

As these broadening real estate trends continue to build, prestige brands need to align marketing activity and sales strategies to match the newfound mobility of their fastest-growing customer segment.

Residential Real Estate Is Booming

A survey conducted by the National Association of Realtors found that international purchases of homes in the United States totaled US$68.2 billion from March 2012 to March 2013, which was off US$14 billion from the same period a year ago. This decline is attributed to a number of temporary factors, including economic slowdowns in a number of major foreign economies, tighter U.S. credit standards, and unfavorable exchange rates.

Nearly half of total international transactions (49 percent) are buyers who are recent immigrants or temporary visa holders residing for more than six months in the United States. Many of these purchasers are seeking to use real estate investment to anchor their families in America.

The National Association of Realtors survey reported purchases from 68 countries, but five have historically accounted for the bulk of purchases: Canada (23 percent), China (12 percent), Mexico (8 percent), India (5 percent), and the United Kingdom (5 percent). These five countries contributed approximately 53 percent of transactions, with Canada and China the fastest growing sources over the years.

Chinese homebuyers accounted for US$8.2 billion worth of sales in the last year (12 percent of all international purchases), compared to US$9 billion in the period one year ago (11 percent of total). Note that this period included the remarkably slow first quarter of 2013, when potential Chinese buyers were constrained by the national leadership handover and corresponding crackdown on luxury purchases in China.

Approximately 53 percent of reported purchases by Chinese buyers were in California. That’s a huge number, and clearly explains the breathless rush that we see in Southern California.

But demand is also broadening. According to information from the National Association of Realtors in March 2013, the five markets of greatest interest to potential Chinese buyers are Detroit, Los Angeles, Irvine, Las Vegas, and Orlando.

In New York, Nikki Fields and Kevin Brown, top-producing agents at Sotheby’s International Realty, noted that “the only properties that buyers from China will consider are new developments.” This phenomenon has also carried over into sectors like automotive and timepieces.

The Sotheby’s team has calculated that around 20 percent of transactions in the high-price range involve international buyers (many from Asia), and that this group represents the fastest-growing segment of customers.

Top reasons cited by Chinese buyers for U.S. real estate investments include access to high-quality education, quality-of-life concerns, desire to immigrate, and investment opportunity.

Most home purchases are made with cash, but it is not uncommon for buyers to purchase houses with their China UnionPay credit or debit card, which has no daily limit and provides favorable currency exchange rates.

How Should Luxury Brands Respond?

While Chinese real estate purchases are clearly of interest to those involved in the real estate business in the United States, luxury brands should also take note. These purchasers are not simply “leisure tourists” who visit the United States and never return. Many are “partially immigrating,” and are not only repeat visitors but highly influential within their immediate circle of family and friends.

And since word-of-mouth is the number-one influencer of luxury goods within the global Chinese demographic, it is crucially important for luxury brands to engage during the early stages of their planning process.

Fields and Brown, of Sotheby’s, also mentioned that, due to privacy concerns, very few buyers from China will agree to refer friends or colleagues who are also looking to acquire property. That’s unusual in the real estate industry, and means that professionals and marketers need to work much harder to establish networks of potential buyers.

In terms of competencies and skills, Brown added, “most of the failed transactions we see involving buyers from China can be attributed to a real estate agent who does not understand how to effectively engage buyers from China, either culturally or professionally.” Many best practices can be acquired only through years of experience, and brand professionals in all industries need to take time to learn and adapt their skillsets to serve an international and Asian clientele.

Luxury brand professionals need to adapt practices to serve these affluent new arrivals.

  • Understand the profiles of your Chinese customers. Identify those who own property in the United States and may be frequent visitors, versus occasional tourists.
  • Develop loyalty programs for customers who acquire property near your retail locations. Property owners from China are ideal customers, as are their friends and family who frequently visit and look to them as influencers.
  • Build relationships with key influencers in the real estate community. Chinese investors tend to have a very limited circle of trusted advisors—be sure to know who they are in your community.
  • Adjust your expectations in building sustainable business with the global Chinese demographic. Relationships take time to develop, and multiple iterations are usually required to produce a winning product offering.

Most importantly, brands should recognize that not all Chinese customers are alike, and should take the time to understand customer profiles, preferences, and habits. It is not always easy to tell the difference, but understanding these nuances can mean the difference between building highly lucrative and sustainable relationships and simply completing one-off purchases.


Sage Brennan is co-founder of China Luxury Advisors, a boutique consultancy that helps luxury brands and retailers to develop China-related strategies, ranging from market entry to social media to attracting, converting, and retaining Chinese tourists.  Sage first visited China in 1987, and has worked in China as a researcher, investor, entrepreneur, journalist, and advisor, with a specialization in digital, mobile, and strategy. Follow China Luxury Advisors on Facebook or Twitter.

Business & Finance / Real Estate
Tag: california, china, china luxury, chinese... , More
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