Chinese investment in US real estate will hit $15 billion in 2014, and Los Angeles is becoming one of the major beneficiaries as buyers branch out into more cities, according to a recent report.
Los Angeles has already ranked second among US markets for Chinese real estate investment in 2014, having benefited from $780 million in China-sourced acquisitions, real estate consultancy JLL found through its research.
“Chinese investors are finding themselves increasingly comfortable in L.A., which is a testament to the market’s strong fundamentals, opportunities to obtain secure returns and transparency,” said Michael Zietsman, Managing Director of JLL’s Capital Markets division in the U.S.
Chinese Outbound Investment Diversifies
As outbound real estate investment from China grows, it is spreading to an ever greater number of locations, with global gateway cities getting most of the attention. After first buying up properties in Hong Kong and Singapore in 2011 and 2012, Chinese investors have since moved on to London, New York, Sydney and other cities.
Now JLL sees Los Angeles as the next target, and there are some facts to back this up. During August Dalian Wanda, the property developer belonging to China’s richest man – Wang Jianlin, bought a Wilshire Boulevard site for what is said to be a $1.2 billion project. Also in August, Chinese developer Shenzhen Hazens acquired a Los Angeles hotel for $105 million.
According to JLL, total Chinese real estate investment in Los Angeles came to $779.7 million in 2013. For 2014, the real estate agency has LA second among US markets (after Manhattan), with US$780 million in Chinese real estate investment. The report attributed the overall growth in US property investment by Chinese to the comparative stability of US income-producing assets and the opportunity for long term capital growth.
The attractiveness of Los Angeles, as the second largest city in the US, seems to correlate closely with the appeal of the country as a whole. “For large Chinese investors the Los Angeles economy looks to offer a more stable investment model with the long term value of diversification into a new market,” says Scott Barrack, Managing Director of Space Global Real Estate in Shanghai and the China Director of the Hollywood Regional Center.
Home Buying From Chinese Wealthy Individuals on the Rise
The surge in development projects from Chinese companies may in part be due to rising interest by Chinese wealthy individuals in purchasing US homes. According to statistics from the National Association of realtors in the US, which groups buyers from Hong Kong and the mainland together, Chinese buyers ranked first among overseas purchasers of US homes last year in terms of dollar value.
Overall, wealthy Chinese purchased $22 billion in US homes last year, a number that was nearly double the $12.8 billion purchased in 2012.
According to Barrack, who grew up in the Los Angeles area before moving to China more than a decade ago, the affinity for southern California property among Chinese investors is what’s driving sales and bringing over the larger players.
“The earliest Chinese investment in the California market did not come from the big developers but rather the individual home buyers,” Barrack commented. He estimates that the aggregate value of investment by these wealthy individuals still outstrips spending by the big name developers in the area.
Big Chinese Developers Follow Customers to the US
This wave of Chinese home buyers headed to the US come from among the major customers of China’s biggest real estate developers, who now appear to be following their clients overseas. Greenland Group, which broke ground on the $1 billion Metropolis project in Los Angeles earlier this year, and closed on a joint venture deal for the $4 billion Atlantic Yards project in Brooklyn, New York during July.
And now many of these developers are headed to Los Angeles. Alistair Meadows, Head of JLL’s International Capital Group in Singapore commented, “Chinese developers have been the trailblazers into gateway cities all over the world and LA is no exception. Many of these groups are experts in residential and mixed use projects and they are exporting this knowledge to the world’s biggest cities.
Among US states, California seems to be the top target with Chinese accounting for 35 percent of all international residential sales according to the Association’s figures.