End of an era as China’s love affair with US real estate fades

Bloomberg

For David Wong, the business of selling homes isn’t as good this year as it was in 2015, and he’s blaming that on a decline in customers from China.
“The residential-property market here, especially for those priced between $2.5 million to $3 million, has been affected by China’s measures to control capital flight,” said the New York City-based Keller Williams Realty Landmark broker. “You need to cut the price, or it may take a real long time.”
Wong is not the only one who has felt the cooling in the U.S. real estate market for foreign buyers. Total sales to Chinese buyers in the 12 months through March fell for the first time since 2011, to $27.3 billion from $28.6 billion a year earlier, according to an annual research report released by the National Association of Realtors. The number of properties purchased by Chinese also declined to 29,195 units from 34,327 units. While the total international sales saw its first decline in three years, the 1.25 percent pace is slower than 4.5 percent recorded for Chinese buying. In terms of U.S. dollar value, the total share of Chinese buying of international sales dropped from 27.5% to 26.7%.
“Some capital flow control measures have definitely affected the sales to Chinese buyers,” Lawrence Yun, chief economist for the Realtors group and lead author of the report, said in a phone interview.
The yuan began plummeting in August, driving the Chinese currency to a five-year low versus the U.S. dollar. The Chinese authorities have been compelled to increasingly tighten the noose on cross-border capital flows to defend the yuan and to slow down the burnout of the nation’s foreign-exchange reserves since then. This includes increasing scrutiny of transfers overseas,
to closely check whether individuals send money abroad by breaking up foreign-currency purchases into smaller transactions. A slowing economy and the weaker yuan also played significant roles in suppressing the Chinese demand, said Yun.
The median price of existing-home sales in the United States increased by 6 percent in March 2016 from one year ago, but when measured in the Chinese currency, they were 10% more expensive, Yun estimated. They were costlier when it comes to California and New York, major destinations favored by the Chinese buyers, he said.
The Chinese currency depreciated 4 percent during the reporting period of the Realtor group’s research. The onshore yuan fell 2.92 percent against the U.S. dollar in the three months ended June 30, the biggest quarterly drop since 1994. The CFETS RMB Index fell to an all-time low of 94.25 on July 8, before rebounding slightly.
China’s economy expanded 6.9 percent in 2015, with 22 of the mainland’s 31 provinces decelerating from a year earlier as the nation’s growth slowed to the weakest pace in 25 years.
While the buying spree from China has slowed somehow, “our report still shows the dominance of Chinese buyers compared with other international buyers, ” Yun said in the interview.
“China is expanding by above 6 percent in its economy. It is not a spectacular growth but still far better than many other countries, and hence they have more millionaires to further support the U.S. property market.”