By Calum MacLeod, USA TODAY
BEIJING — A special Chinese tour group is heading to the United States later this month to go bargain hunting for houses at foreclosure prices.
More than 40 affluent house hunters from across China will begin a trip to Boston, New York, San Francisco and Los Angeles on Feb. 24 in search of cheap homes to buy. Their goal: to find investment property and housing their children could use when they go to the USA to study or work. Their budget: $300,000 to $800,000 apiece.
CHART: Price declines in four major cities
“U.S. house prices are lower now, and we’ll also be looking at low-price houses auctioned off by the courts,” says Zhao Xinyu, a manager at Soufun.com, China’s leading real estate website and the trip’s organizer.
This is the first overseas buying trip for the real estate firm, whose name in Chinese means “search house” and which has organized house-hunting trips inside China. It may not be the last.
“We won’t force our clients to buy,” Zhao says of this first group of bargain hunters, who are paying $3,600 each for the trip. “But if it’s successful, we’ll organize several more trips this year.”
Hunting for businesses, employees, too
Cash-rich China, whose purchases of U.S. Treasury notes help prop up the federal government, is looking to recession-stricken America for more than just houses at the right price.
Chinese companies are on the ground looking for U.S. firms on the skids, says David Putnam, head of Asia for Houlihan Lokey, a Los Angeles-based investment bank that specializes in financial restructuring. They’re looking for people, too.
“We are aware of a number of Chinese strategic players who are interested in acquiring distressed U.S. assets in a number of industries,” says Putnam, who is based in Hong Kong. “They have people looking on their behalf, and they are sending people over to visit.”
In the last two months, headhunters have been scouring America’s decimated financial sector mostly for ethnic Chinese executives. Twenty banks from the Chinese financial capital of Shanghai toured in December in search of talent, the China Daily newspaper reported. Last month, the Chinese government dispatched recruiters to New York and Chicago for 1,700 people to help build the country’s nascent financial services industry.
But houses are assets that individual Chinese with money can try to cash in on.
“Once Chinese accumulate some capital, we want to find an outlet,” says Shen Yue, a Chinese film producer. “China is growing richer, but this is still a country run by the Communist Party, which inherently distrusts private property. The party’s power is more than the rule of law. That is scary, and we cannot be sure about changes in the future. The U.S. market and social system are more stable.”
Shen, who already owns four houses in Beijing and Shanghai and who hasn’t been to America, says he wants to take a future Soufun.com house-hunting trip to the United States and spend up to $500,000 for a house.
There appear to be plenty of others like him. Soufun.com’s trip to the USA originally was planned for January, but it was delayed because the number of applicants outnumbered the spots on the tour tenfold. The tour targeted Boston, New York, San Francisco and Los Angeles for the potential buying spree because of their large ethnic Chinese communities and because they have a large number of universities.
Although individual Chinese have been buying property in the USA for several years, this is the first organized group trip, says professor Wang Hongxin, director of the Real Estate Research Institute of Beijing Normal University.
“This is a good experiment,” Wang says of the tour. “For despite the recent price falls, the market in the U.S. is more stable and civilized (than China). This is a high-income group who want a new investment, or a new lifestyle, and a house near a university for their children. In the future, there will be more Chinese heading to the USA to live and work.”
Buyers beware
Wang contends, however, that China’s housing market may be a better investment than America’s.
“The Chinese real estate market has the greatest potential worldwide,” he says. “Currently, it is not as hot as in previous years, but the rates of return will still be higher than other markets.”
He also warns, “Some of the group (of Chinese buyers) may underestimate the challenges of investing overseas, as they are unfamiliar with the U.S. culture and system.”
Dan Harris, a Seattle lawyer and co-writer of the popular China Law blog, echoes those concerns.
Many potential buyers, Harris says, “believe that by buying property in the U.S., it will increase their chances of getting a visa — but it won’t.”
Harris also worries Chinese buyers may end up with the wrong kind of bargain, such as a foreclosed crack-house. “It’s like an American going over to Shanghai to buy property, and we have had many horror stories there,” he says.
Shen, the film producer, sees only an upside.
“After the subprime crisis, U.S. houses are down by 20% or 30% — even more than the price falls in China,” he says. “I just need to find the right channel to invest.”
The way Shen sees it, the Chinese may be a big help to Americans saddled with mortgages they cannot pay. He says there are several hundred thousand Chinese like him who easily can pay up to $500,000 for a house.
“We are a huge market for the USA,” he says.
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