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Record Drop in Foreigners Buying U.S. Homes

Foreign purchases of U.S. homes had their biggest drop ever, bringing relief to waves of American house hunters who have struggled to compete in affluent neighborhoods with wealthy buyers from abroad.

Purchases by international buyers totaled $121 billion in the fiscal year ended in March, down from $153 billion the previous year, according to a survey by the National Association of Realtors released Thursday. That 21% decline was the largest on record, the NAR said.

The drop in foreign interest helps well-heeled buyers in places like Manhattan, Seattle, San Francisco, Miami, and Orange County, Calif. While foreigners make up a small share of the overall U.S. housing market, they are concentrated near the high end of the market and are more likely to pay in cash and bid above the asking price, according to agents in these markets. That has challenged local buyers to come up with larger down payments and pay more.

The sharp decline in purchases reflected higher home prices, a strengthening dollar and intensifying political tensions between the U.S. and other parts of the world, economists say.

“The [discussion of a] trade war or just the rhetoric against foreigners may have dampened some of the enthusiasm to buy property in the U.S.,” said Lawrence Yun, chief economist at NAR.

The pullback creates an additional challenge for many sellers, who have welcomed foreign interest and the ease of all-cash deals. The housing market is already slowing, especially for developers of higher-end condos, some of whom heavily marketed their units to foreign investors.

“This might be the first time in my career that I’m seeing more Chinese sellers than buyers,” said John Chang, a broker-owner at Engel & Völkers in New York City.

Mr. Chang said his clients have watched prices rise sharply in recent years and determined that now is their opportunity to “cash out.”

On a trip to China last week, Mr. Chang said he realized that Chinese news coverage of the U.S. is spooking would-be buyers. “It’s staggering,” he said of the negative coverage, including editorials saying now isn’t a safe time to invest in the U.S. and articles chronicling real-estate developments funded by Chinese investors that have gone bankrupt.

Chinese buyers remained the largest purchasers of U.S. homes but their purchases fell 4% from the previous year to $30.4 billion. Purchases by Canadians, the second-most-prolific purchasers, dropped 45% to $10.5 billion.

Existing-home sales have fallen on an annual basis in five of the past six months, buffeted by rising prices, a long stretch of low inventory and rising mortgage rates. The decline in purchases by overseas buyers is adding to the market’s woes.

“Part of that softening is foreign buyers pulling back slightly,” said Mr. Yun of NAR.

Foreigners continued to purchase more expensive properties than most locals in the past year but they also pared back their spending habits. The median price of a residential property purchased by a foreigner was $292,400, down from more than $302,300 a year earlier. The median local existing-home buyer spent about $50,000 less. Chinese buyers continued to purchase the most expensive properties, with a median price of $439,100.

Nearly 40% of Chinese buyers bought in California, which has a large Asian community, good air quality and strong universities. But Chinese buyers recently have been unable to get money out of their country and also are concerned about growing tensions with the U.S., according to agents.

Kerry Lynn, an agent at Douglas Elliman in New York, said she used to conduct more than half of her business with Chinese purchasers but hasn’t traveled to China in six months. She has shifted to finding local clients and helping Chinese clients sell what they already own.

Ms. Lynn said the main hurdle is that the Chinese government has tightened restrictions, allowing residents to take only $50,000 out of the country and requiring banks to report what the money is being used for. Tuition is an acceptable use but buying real estate generally isn’t.

“I have a client that bought in 2014 and they were here about eight months ago and they wanted to buy another apartment. They found something they loved and they couldn’t do it. They were nervous,” she said.

Canadian buyers, who primarily buy vacation and retirement properties in Florida and Arizona, ramped up purchases in recent years only to pull back in the past year. A strong American dollar and tensions between the U.S. and Canada over trade negotiations have driven the pullback, according to agents.

Brent Leathwood, a broker in Florida, said Canadian professional investors are taking a wait-and-see approach and retiring baby boomers are simply scaling back what they purchase.

The political uncertainty “destroys investors’ ability to make long-term investments decisions with confidence and we are seeing this uncertainty rear its ugly head,” Mr. Leathwood said.

Updated: 12-04-2018

Chinese Dumped $1 Billion of U.S. Real Estate in Third Quarter, Extending Recent Retreat

Rising corporate debt levels, concern over currency stability led Beijing to tighten capital outflows and curb overseas acquisitions.

Chinese investors offloaded more than $1 billion in U.S. real estate in the third quarter, extending their recent retreat from hotels, office buildings and other foreign property under pressure from Beijing to reduce debt and curb money sent abroad.

Insurers, conglomerates and other big investors from China sold $1.05 billion worth of U.S. real estate in the third quarter, while purchasing $231 million of property, according to data firm Real Capital Analytics.

That was the second straight quarter in which Chinese were net sellers of U.S. commercial real estate. The second quarter marked the first time these investors sold more U.S. property than they bought during a quarter since 2008.

Chinese investors have spent tens of billions of dollars over the past five years to acquire U.S. real estate or land, favoring major metro areas like New York, Los Angeles, San Francisco and Chicago. Chinese buyers sometimes paid record prices to win trophy assets, punctuated by Anbang Insurance Group’s $1.95 billion acquisition of New York’s Waldorf Astoria in 2015—the highest price ever for a U.S. hotel.

While Chinese buyers never represented more than a fraction of the buying power in any U.S. market, these companies often made headlines with the steep prices they were willing to pay, which helped push values higher in certain segments of the market.

But rising corporate debt levels and concern over currency stability led the Chinese government to tighten capital outflows and clamp down on their companies’ overseas acquisitions. Chinese investors scaled back their purchases and unloaded foreign assets.

More recently, trade tension between Beijing and Washington, D.C., has sparked additional selling, even though many Chinese are still interested in overseas projects, and the two governments reached a tentative truce this weekend.

“This has to do more with a change in how capital is permitted to behave rather than Chinese investors saying ‘I don’t like the U.S.’,” said Jim Costello, senior vice president at Real Capital Analytics.

Ping An Insurance Group Co. of China and partners in August sold a 13-story Boston office building for $450 million, the largest sale by a Chinese investor during the third quarter, Real Capital Analytics said. Its U.S. partner Tishman Speyer said it was the one that drove the decision to sell the building.

China’s retreat showed signs of continuing in the fourth quarter. Dalian Wanda Group sold a glitzy development site in Beverly Hills, Calif., last month for more than $420 million. The Chinese conglomerate purchased the eight-acre parcel in 2014 for $420 million and had planned to develop luxury condominiums and a boutique hotel on the site, but feuds with a local union and contractors stalled progress.

Anbang recently engaged Bank of America Corp. to help it sell a portfolio of luxury hotels that it acquired two years ago for $5.5 billion, though the Waldorf isn’t part of that sale, according to a person familiar with the matter.

“Anbang is reviewing the company’s U.S. real estate portfolio after seeing a price recovering in local property market due to strong recovery of the U.S. economy,” said Shen Gang, a spokesman for Anbang.

Some analysts suggest Chinese selling may ease in the months ahead.

“I do not think it will be a tidal wave of sales,” said Jerome Sanzo, managing director and head of U.S. Real Estate Finance for Industrial & Commercial Bank of China. “Some of them are not able to move forward for various reasons and will take gains now while waiting for future changes.”

Not all Chinese are staying away. Shopping-center landlord Site Centers Corp. said last week it sold an 80% stake in 10 shopping centers to two unnamed Chinese institutions that valued the property portfolio at around $607 million. Site Centers will retain a 20% stake in these shopping centers, which are located in places like Raleigh, N.C. and Phoenix.

The deal stood in contrast to the expensive trophy properties in big coastal cities that have attracted Chinese money in past years.

“These investors bought these assets for exactly the right reasons,” said David Lukes, president and chief executive officer of Site Centers. “They wanted high quality, stable cash flows at a reasonable price.”

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