The coronavirus epidemic that has China on near-lockdown likely will quash U.S. home sales to Chinese buyers, the No. 1 foreign purchasers of American property for the last seven years.
“Everything coming out of China is on hold, and that would include, for the most part, Chinese nationals buying U.S. real estate,” said Jonathan Miller, president of Miller Samuel.
Buyers from China accounted for $13.4 billion of residential real estate sales in the U.S. in 2019, with more than a third of those purchases occurring in California, according to the National Association of Realtors. Canada was No. 2, at $8 billion, and India was No. 3, at $6.9 billion. Both of those nationalities favored Florida over California.
Chinese government officials at airports and train stations are blocking people from leaving or entering cities, and neighborhood watches are making sure residents stay in their homes. Bars in Beijing and Guangzhou, the city formerly known as Canton, have begun delivering happy hour drinks – a discount normally reserved for customers who are physically present in a bar – to the homes of customers stuck indoors.
It’s not likely Chinese nationals would be able to tour U.S. homes for sale unless they escaped China before the borders were closed or were overseas when the virus first appeared in December.
Of course, wealthy Chinese buyers could use lawyers and other stand-ins to purchase homes in the U.S. They could view prospective properties while locked in their Beijing home using a video call with their U.S. agent, or view a listing website’s virtual reality tour – sometimes called a “360” video.
But, it’s not likely to result in a sale, said Miller.
“Buying a property site-unseen has always been the exception, not the rule, and I don’t see that changing all that much,” Miller said.
Chinese buyers, like other foreign purchasers of U.S. real estate, often combine property shopping with vacation time so they can see the home in person, Miller said. That’s not possible, for now.
Over 60 countries, including the U.S., have imposed travel restrictions on Chinese citizens, hoping to limit the spread of the coronavirus named Covid-19 that has killed more than 1,600 people since December.
Buying “sight unseen” is even less likely for high-end properties, and those are the types of homes most Chinese buyers are seeking, according to NAR data.
The median price for a buyer from China was $454,900 in 2019, compared with a $280,600 median price for all foreign purchasers, NAR said.
More than a third of home purchases by Chinese buyers – 34%, to be precise – were in one state in 2019: California. New Jersey was a distant second, at 8%, followed by Illinois, Massachusetts, and Indiana, at 5%. Florida and Georgia were next, with a 4% share, according to NAR data.
For buyers from Canada, India and the UK, Florida was the No. 1 destination. About 42% of U.S. homes purchased by Canadians in 2019 were in Florida. The share for residents of the UK was 35% and for Indian buyers it was 14%. The top state for buyers from Mexico was Texas, with a 28% share, according to NAR data.
More than 71,000 people have been infected with Covid-19, according to the World Health Organization. That’s worse than the 8,098 infections worldwide during the SARS outbreak from 2002 to 2003. China’s health minister, Ma Xiaowei, told reporters there is evidence the virus has already mutated into a stronger variation that is able to spread more easily among humans.
The dollar volume of U.S. home purchases by Chinese nationals already had been falling after China implemented measures to stop the flow of cash out of the world’s most populous nation. That crackdown cut the dollar volume of U.S. home purchases from a record high of $31.7 billion in 2017 to $30.4 billion in 2018, with a further 56% drop to 2019’s $13.4 billion.
Even at that lower level, Chinese purchases accounted for about 1% of all U.S. home sales, according to Lawrence Yun, NAR’s chief economist.
“Clearly the virus is going to be a negative for U.S. real estate from the perspective of travel restrictions on people coming from China, and it’s also likely to result in greater capital controls because of the need to stimulate the Chinese economy,” Yun said in an interview.
In other words, Chinese officials may become even stricter in their efforts to keep money from leaving the country, Yun said.
“We’ll have to wait to see how that policy plays out,” he said.
If Chinese buyers find a way to get money to the U.S to purchase real estate, next year could see demand increase as wealthy families try to secure a home in areas of the world they perceive to be safer, Yun said.
“In the short term, meaning possibly this year, there could be fewer buyers – not just because of greater scrutiny on travel but also because China’s economy is weakening because of the virus, which could result in income reductions,” Yun said.
“But going forward, real estate in predominately virus-free zones, assuming we don’t see the virus pop out in western countries, could see a rise in demand from Chinese buyers,” he said.
The annualized growth of the Chinese economy slowed to 6% in January, according to government data. That’s considered painfully slow by Chinese standards, and it’s just half the rate seen in 2010. However, it’s still triple the U.S. expansion rate.
“China is no longer a third world country,” Yun said. “It’s generating a top tier of extremely wealthy individuals, and you may see wealthier Chinese people begin to say, `I’m tired of some of these third-world conditions. I want better access to western countries.’ When that happens, demand for U.S. real estate from Chinese buyers is going to get a boost.”
So much is unknown about Covid-19, it’s hard to predict when that might happen, he said.
“Whenever that boost comes, it’s going to happen when the coronavirus situation is long gone,” Yun said.
