China Law Blog

Dan.

Man - you need to give these guys more credit.

First, Soufun is not some corner real estate shop. they are a multi-city platform that has received several hundred million in funding and have a strong reputation for their database of research and asset pricing in China.

Second, If you have never been on one of these tours, then it is hard to see, but it is not some spastic process that starts with buying a star map on the LA strip.

It is 20 houses in 3 cities with 35 investors, who are themselves real estate insiders.

Third, the Chinese are not new to buying real estate in the US market. If you look in NYC, SF, LA, and other large cities with a significant Chinese presence you will find a lot of Chinese owned rental properties.

This group is going to 2 of those cities, and the price range of these properties suggest they are primarily those that can be rented out. They are not looking to buy a new lot, they are looking to take over a bad loan.

My opinion, this is probably going to be a trip where some great assets are marketed, and I imagine a number of them are taken up through this trip (or subsequent trips).

I have seen how these groups operate through the China's second tier, and there is a history of making people on these trips a lot of money throughout China

r

What?! You mean buying residential property in the US can't buy you a green card? And, as I was asked not more than two weeks ago by an otherwise intelligent mainland Chinese businessman, buying US$400,000 real estate in the state of Texas cannot award you US citizenship?

Signed,

Pollyanna

@ Dan

Here in Denver, those numbers are close to reality. How do I know? A friend of mine owns 21 properties, all bankruptcies and auctions.

Here's the catch. People evicted from the home they thought they'd own in 20-30 years or flip in 5 usually trash the place on the way out. Sometimes after an investor/developer has bought it they come back in and trash it again. Investors (or landlords if you prefer) often rent out the units they buy at discount, especially in this market where flipping just brings laughter from experience real estate agents and if they have to evict due to non-payment the same vandalism occurs.

In Denver you can get 3-4 bedrooms (or 3 bedrooms and a rec room) in the burbs for between 100k and 175k depending on location, condition of the house, etc. If there are Chinese investment groups interested in getting in on this kind of action, I can help with the introductions.

Basically, nothing above $400,000 is moving. I've seen $1 million houses in a neighborhood near mine advertising for $800k and a savvy agent and some due diligence could get it to $750k.

Chinese buyers may be in for another shock. Meth houses. Basically a meth house is almost a superfund site. The chemicals are in the walls, wood, coat the pipes and metal frames, rugs, floors, cabinets, everything. There is no cleanup technology and legal disposal involves a landfill with a hazmat permit ($$$$$$$$$$$$$$$$). In Colorado, the seller/agent MUST disclose if meth was produced, stored or consumed in the house. Don't know what other states' laws are, but anything less than full disclosure laws and severe penalties and the Chinese buyers may be in for a very unhealthy and unprofitable surprise.

There seems to be a very good business opportunity here for a reputable property management company in the United States. The logical structure here is a REIT, but my experience is that Chinese investors tend to be very nervous about indirect purchases of real estate, but something could be worked out.

One problem in doing business in any sort of cross-cultural context is that you have to be careful who you do business with. Even if there is money to be made, there are a lot of people on the other side that will rob you blind and take advantage of the fact that you don't know what is going on. The flip side of this is that when you do find someone that you can trust, then this relationship is worth a huge amount of money.

This is not a surprise, when talking to Chinese about prices for apartments in BJ, SH, and SZ here and then dealing with questions about US prices, their eyes almost always light up as they see it as a great opportunity, especially with the weak dollar. And while buying property won't get you a longtime visa, I'm sure it goes a long way in making sure you're visa app will be approved...

Also real estate makes a lot of sense for parents with students studying in the United States, since the hard part of real estate management is to have someone that you can trust on site.

The other thing is that I suspect that the reason that you have a focus on SF, LA, and Las Vegas is that those areas have large ethnic Chinese populations. Once you have Chinese in an area then you have a trust network develop in which you can figure out who to trust and who not to trust and there are bad reputational consequences for doing certain things.

Also Chinese real estate agents often end up being a intermediary between the Chinese community and non-Chinese since they end up doing business with both groups.

Buying property will have no effect on whether your visa gets approved or not... unless you are talking humongous, Getty endowment type of money. I personally know 1 non U.S. citizen who has recently purchased a oceanfront home in Palm Beach County, Florida. This gives him absolutely no leeway; 7 years ago he bought a similarly multimillion dollar house in Orlando and was forced to sell it when it proved completely useless in securing a visa. What can help him is if he has at least X (10 or 20, i forget) employees and invests X million of dollars in a U.S. business for a certain length of time.

This isn't something he has conjectured, but what one of his U.S. lawyers has told him. He is currently scouting for feasible biz opportunities here in Palm Beach county. Just this morning we were talking about his situation; I am amazed that a multimillionaire looking to invest big cash still has to fill out the apps and do the green card shuffle.

There are goo-gobs or people with 100K, 250K, 500K to drop on a house in the U.S., and if it were that easy to secure (or even ease the process of getting) a visa, a lot more people would have gone that route long ago.

Basic practical question: How do the Chinese get the USD to buy the houses? Isn't there a yearly limit ($50K?) on individuals' foreign exchange transactions?

Information assymetry.