China is one of the wealthiest countries in the world. With over 1 billion mainland Chinese, it is an inevitability that China will become the richest country in the world one day.
Mainland Chinese people are buying U.S. property. Foreign buyers is one of the reasons why I’m so bullish on the housing market post-pandemic. Foreign buyers will rush back to buying inexpensive U.S. real estate.
I’m somewhat conflicted though. On the one hand, I benefit as an asset owner. On the other hand, the American Dream gets harder to achieve for those who aren’t prepared.
Wealthy mainland Chinese people buy an asset (usually a house) for a ridiculous price and crowds out existing domestic buyers. I’ve always heard stories about rich mainland Chinese people buying up America, but I never experienced the situation until recently.
A home nearby had been languishing on the market for three months during the winter holidays, November – January. The agent priced the property at $2.1M, and I was absolutely positive it would go for closer to $1.9M. To my great surprise, the house ended up selling for $150,000 over asking! I was baffled, and wondered what type of donkey would bid up a stalefish listing.
It turns out, probably a very rich donkey because the selling agent told me the new owner is a 20-something year old English + Art student from China. She visited the place in between classes one day and told her parents this was the one. Her parents paid all cash.
How To Profit From The Wealthy Mainland Chinese
I chalked the purchase up to another lucky neighbor who didn’t have to struggle and save to buy their own home. A massive generational wealth transfer is real, and I have yet to meet one neighbor who bought their own home with their own money. I’ve met eight neighbors so far.
All was good until a $120,000 Nissan GT-R started flying through our quiet neighborhood roads one day. The car has obnoxious after market exhaust pipes that trigger car alarms after it zooms by. The driver clearly doesn’t give a damn about tranquility or safety. Eventually, a pedestrian or child will be run over by this car if nothing is done.
As I was going for my weekly hike, I noticed the GT-R parked right outside of the $2.25M house. It was conveniently next to the 20-something year old owner’s turquoise Maserati Granturismo that costs about $150,000. I reached out to the listing agent to ask what was up, and he said the GT-R driver is her boyfriend, also a 20-something year old English + Art major from China.
I can now see why some people hate rich international people. It’s one thing to make living more expensive for folks already living here. It’s another thing to flaunt your wealth and disturb your neighbors, especially if you’ve done nothing to deserve it. Previous generations of Chinese immigrants had reputations of being frugal, hardworking, and respectful to others. It seems like attitudes have changed with China’s nouveau rich. Perhaps the wealth levels are so extreme now or perhaps it’s the typical spoiled rich kids syndrome that has infected this particular homebuyer.
Curiously, you can’t legally take out more than $50,000 a year from China. Therefore, it’s always a mystery how so many mainlanders can pay cash for multi-million dollar foreign assets. I’ll share their secret at the end of this post.
Mainland Chinese Have Huge Money
Although China has a per capita GDP of only ~$7,000, the rich are obnoxiously wealthy with 213 of the world’s billionaires (#2 in the world) and thousands of unknown millionaires. Entrepreneurship, skilled emulation of Western businesses, and perhaps a little government help are the keys to such massive wealth creation so quickly.
I’ve been researching China since I first studied abroad in Beijing, Shanghai, and Chengdu in 1997 as a college student. Since then, I’ve gone back multiple times for work, and helped bring public some of the largest Chinese companies such as China Mobile and Baidu.
It’s clear to me the Chinese are to the world today as the Japanese were to the world in the 1980s. With the opening of their capital account system, the Chinese will go on a global spending spree for the next several decades. It’s no use fighting an inevitability. We all should be prepared to welcome them with open arms.
“To get rich is glorious!” (致富光荣) said Chinese leader, Deng Xiao Ping back in the 1980s as he transitioned China from a Communist Maoist regime into one of the world’s most capitalistic countries. How surprised Deng Xiao Ping would be if he were alive today.
How To Profit From Mainland Chinese Wealth
To profit from China’s nouveau rich, we must understand what Chinese people from mainland China are like. Please be aware there’s a big difference in Chinese people based on where they’ve grown up, just like how there are big difference with every other ethnicity that spreads the Earth.
Let me share several general points about the Chinese you should know.
1) Chinese are infatuated with real estate.
To be rich is to have real assets. Owning as much real estate as possible is one of the key objectives for most Chinese people. They don’t even need their property to earn rental income.
There is an underlying fear among wealthy Chinese in China the government will one day confiscate their wealth or investigate them for shady business practices. As a result, wealthy Chinese are trying to get as much of their money out of the country as possible.
Take a look at this infographic below by PropGoLuxury. The report was generated from millions of online searches by Chinese investors in 2021.
One insight you could glean from this report is that you should be buying real estate in places like San Francisco, London, Tuscany, New York, and Paris. Although Seattle has most recently being rising in interest after Vancouver instituted a 10% foreign investment tax.
Chinese investors tend to invest where there is a concentration of Chinese. Hence, it’s not good enough to just buy property in one of the top 20 most viewed cities. You need to buy in areas where there is already a thriving Chinese population.
In San Francisco, that area is the Richmond and Sunset Districts. In New York, the Chinese are clustered in Queens, Brooklyn, and Chinatown Manhattan (lower). In Vancouver, they are everywhere, but especially on the west end.
2) Speak Mandarin and understand Chinese culture.
Roughly 15% of the world’s population, or 1 billion people speak Mandarin compared with 500 million who speak English. Doing business successfully is all about positive connectivity. By speaking Mandarin, you’ll be able to better connect with wealthy mainland Chinese.
Not only should you speak Mandarin and English, you should also go to China, Taiwan, and Hong Kong and immerse yourself in the culture for as long as possible. You’ll be able to pick up important customs that will go a long way towards bridging the cultural gap between East and West.
For example, it’s important to take off your shoes before entering someone’s house. Only in America do we allow people to tramp around our home with dog shit, mud, and dirt stuck to their shoes. It’s also important to serve your elders tea and food at meals, and to be the last one to start eating.
For relationship-building purposes cultural idiosyncrasies are important. You don’t have to speak perfect Mandarin, but at least show that you’ve made an effort.
3) Understand luck, superstition, and feng shui.
The Chinese are very superstitious. You’ll never see a Chinese person choose the number “4” for anything because four is pronounced “si,” which sounds like death. The best number to have is “8,” because it’s pronounced “ba,” which sounds like “fa,” or fortune in Mandarin.
Signs of prosperity include having a mobile phone number with as many 8s as possible, a home address with the number 8, or purchasing something with 8 items like a house with eight exterior windows. I know one Chinese buyer in San Francisco who went up and down a block of homes all starting with the number 8 and left a note in each one of the mailboxes asking whether he could buy the house.
Feng shui is a system of laws considered to govern spatial arrangement and orientation in relation to the flow of energy (qi), and whose favorable or unfavorable effects are taken into account when siting and designing buildings. Feng shui affects happiness, and what’s more important than being happy? Make sure your marketing material addresses feng shui. For example, this marvelous house faces West for maximum creativity during the afternoon, and an injection of health every morning!
4) Understand China’s difficult past.
The Chinese have gone through tumultuous times with numerous invasions and heart-wrenching atrocities. To really build empathy with someone, we must understand their pains.
Here’s a dialogue I had with my Chinese taxi driver when I visited Chengdu several years ago.
“Yes, my income has grown by 30% a year, every year for the past five years. But, I am still a cab driver! Everybody around me is making just as much, if not much more,” he explained.
“What about living conditions? Surely, they are better now?” I asked.
“The government has decided to build these massive high rises for all of us. Yes, at least we have air conditioning during our hot summers, but the space is cramped. Furthermore, food prices have risen by 30-40% recently, especially pork prices. We’re all richer, but we’re all still the same!”
He went on to say, “During the Cultural Revolution, my parents went sent to the countryside. They didn’t believe in helping me further my education, so I didn’t go to college. Here I am, decades later driving a cab. This is all I know how to do, and this is all I will ever do until I die.”
Know about the Cultural Revolution under Mao Ze Dong in the 1960s, and the Nanjing Massacre by the Japanese from 1937 – 1938. These are the two historical events that matter most. It is important we understand the historical plight of the mainland Chinese.
5) Understand loyalty and guanxi.
It’s not what you know, it’s who you know. Nowhere is this more true than when doing business with the Chinese. In America, we may define guanxi as “connections.” Some might more harshly define guanxi as “nepotism.” But in China, it’s about taking care of the people who take care of you.
The importance of loyalty cannot be underestimated. For example, if you help a friend out during a difficult time, not only will your friend be forever indebted to try and pay you back, his children will also be instructed to give deep respect as well. Chinese culture is very centered around family. This is why you’ll tend to see more multiple-generations under one household compared to the United States, where becoming independent is more valued.
6) Work for Chinese companies.
With an understanding of Chinese culture, history, and language, you are primed to work for a Chinese company. After Uber, Xiaomi, a Chinese maker of smartphones, is the world’s second most valuable startup with a valuation over $40B. They have global expansion plans and need people with all sorts of backgrounds. Then there are publicly traded giants like Alibaba, and Baidu always looking for foreign talent.
Also consider multi-national companies like Proctor & Gamble and GE looking to gain market share in China. The NBA is clearly trying to grow its popularity in China. How cool would it be to be the NBA’s liaison in China? Of course, being a real estate agent who helps Chinese buyers buy in your market could be quite lucrative as well. The opportunities are endless!
7) Recognize that new wealth is gaudy wealth.
All mainland China wealth is considered “new wealth” given the economy only really started opening up in the late 1990s. What do all people who suddenly receive lots of money do? They tend to spend it aggressively on the most expensive mainstream fashion items to the extreme.
Gaudy wealth is in your face wealth. Unfortunately, gaudy wealth is often not accompanied by good taste or humility because there hasn’t been much time to cultivate any. China’s National Tourism Administration even released a 64-page handbook called “Guidelines on Civilized Travel Abroad” because there have been so many complaints from around the world about poor Chinese tourist behavior.
The turquoise Maserati GranTurismo the owner of the $2.25M house drives is a perfect example of gaudy wealth. The two massive exhaust pipes and a racing wing on the Nissan GT-R is another example of gaudy wealth. It doesn’t matter if the person looks ridiculous wearing a $700 Gucci shirt that’s two sizes too tight, the Chinese love name brand items to the maximum. They are anti-Stealth Wealth.
What do we know about people who love to show off their wealth? We realize they are crying for attention and feel insecure about their stature. As a result, you must learn how to ingratiate yourself with those who are ostentatious by fawning over their belongings. Compliment them profusely while also stating how you could never afford such nice things. Once you’ve gained their appreciation, you can start developing a profitable relationship. Mainland Chinese crave respect, prestige, and recognition.
8) Marry a wealthy immigrant.
Foreigners can receive immigrant visas to the US (officially known as EB-5 visa) if they invest $500,000 to $ 1 million in a business that creates 10 or more new jobs. The UK will grant five years right of abode if a foreigner invests 1 million pounds ($1.55 million). In Spain, purchasing 500,000 euros ($557,000) worth of property gains foreigners residency for as long as the property is retained. Money buys a lot of access around the world.
If the immigrant has this much money to invest in just a visa, then s/he will automatically catapult the suitor into upper middle class to rich status because surely there’s more behind. Marrying into wealth is really one of the best shortcuts if you can’t create your own. Let me go bake some cookies for my rich neighbor now and deliver them when her Nissan GT-R driving boyfriend is not around.
China’s Tidal Wave Of Wealth Is Coming To America
Like it or not, the Chinese are coming to buy up our land, bid up our properties, compete for college admissions, take our jobs, and own our businesses. Globalization is an inevitability. Instead of doing nothing, we must figure out how to compete. We know our country better than anybody else. Therefore, we should have a competitive advantage.
With Chinese limited by rules that allow them to convert/take out only $50,000 per person a year, how are they moving some $300+ billion out of the country a year? The answer lies in China’s underground banks, private bankers, offshore trading companies, direct business investments, marrying a foreigner, carrying cash, and pooling the quotas of family and friends — a practice known as “smurfing.”
Let’s say you have 10 family members in China. If you are the wealthy one, you gift each one of them at least $50,000 a year so they can collectively remit $500,000. After five years of remittances, you can buy a $2.5M property, no problem. Of course you’re going to give them something on the side for their hassle. There’s a massive network of financial institutions that will take care of hot foreign money for a fee.
When China’s capital account finally starts to really loosen, we are going to see a flood of money looking to buy real assets around the world. Given tremendous volatility and constant government interference, no mainland Chinese person I know really believes in the long term sustainability of China’s stock markets. Wealthy Chinese seek secure assets just like us. In their eyes, the US and Canada offer the security they desire.
Recommendations To Build Wealth
Explore real estate crowdsourcing opportunities. If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look. I’ve personally invested $810,000 in real estate crowdfunding to diversify my wealth and earn income 100% passively.
Shop around for a mortgage. Check the latest mortgage rates online through Credible. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible.
Updated for 2021 and beyond. The Chinese homebuyers have left the house vacant for over a year since purchase. It looks like they’ve just used the house to park $2.25M of their wealth. It was a great move since the US dollar has appreciated to a 13 year high and the house is now valued at closer to $2.65M. Don’t let the wealthy mainland Chinese buy up our property. Buy up our own property instead!
Great article. I live in China, so I can appreciate almost every point you made. (The ones II can’t appreciate just evidence my lack of experience and ignorance.) Very well thought out and well-written post. You just forgot one thing: cryptocurrencies are also a vehicle for taking out money from China. Hence the new 0.2% tax the Chinese government has created.
By the way, any thoughts on cryptocurrencies as an investment? Especially in light of the Chinese market?
I’m making a really decent living working as an English teacher in China to CEOs and rich kids. First thing I do every month is put as much money as I can into Ethereum (last month, 100% of my income from my fixed salary), and live off the little that’s left that I hustle to get during the month (part-time and substitute teacher). I believe in the future of Ethereum, but part of me believes that I’m being foolish for putting all my eggs in one basket.
I’ve been reading your blog posts every day; you’ve made me believe that living a rich life is not only achieveable, but can also be done faster than you think if you work smart, not hard. Your opinion on this matter would be greatly appreciated by your fan over here in China. :)
P.S.: I’m linking my website below even though I don’t have it up get. I just bought the domain after reading your post about how blogging is the best business in the world. :)
Ah, so cool you are teaching English in China to rich kids :) I enjoyed my time studying abroad in Beijing in 1997. AMAZING WORLD where we biked from san huan lu to the Gu Gong.
Donno about crypto currencies and Ethereum, but i’ll look into it.
Nice job branding yourself online! With your online brand, you can gain more clients, raise prices, and pivot to so many new things!
See this post: To Understand Capitalism, We Must First Understand Communist China
You responded so fast. *_*
I’ll take a look at the links you gave me. :)
Sam, if this money keeps flowing out of china, Chinese stocks will become very cheap. Is there any one Chinese company you’d recommend to buy? Something with high growth potential, competent and trustworthy management, strong brand, etc.
Sam,
Take a look at this article by the NYT today on how Vancouver is getting “Chinesed” and it is causing a housing crisis
https://www.nytimes.com/2016/04/13/world/americas/canada-vancouver-chinese-immigrant-wealth.html?em_pos=large&emc=edit_nn_20160413&nl=morning-briefing&nlid=74725286&_r=0
Looks like this is becoming a pretty common thing.
Thanks for sharing. Very commons in Vancouver, and I’m sure will be more common in the coastal cities of N America very soon.
It’s interesting how different the NYT article is and mine. I always want to find some different perspectives and offer solutions instead of just report.
Absolutely, that’s why we love reading your stuff here on FS!
NEED LAWS to stop this ~~ it’s a scam basically . chinese print all the money they need to buy the world. end of story.
Imagine a poker game. The players are each country in the world. China sees itself as the poker player who has bought a lot of different colored chips from the house and is settled in for a long long game, purchasing from the house and bringing their own chips as well. This may be a traditional value and a propaganda rather than an actual fact, because no one can audit the Chinese banks, which often fail due to corruption. Anyway, the other players representing the other countries haven’t purchased as many chips (or have they got a brother in the game?). China has an unlimited supply of their own chips, and so they can always buy in to OUR game. Only a few other players in the game also have a color of chip with an unlimited supply. Now we see who can arrange the rules best in an ever-morphing poker game. If you ran a casino would you let a player like this continue? Only if they were cool.
Shit just got real…
Heard an odd exhaust rumble outside my window…peered out and what do I see? A tuned grey GTR driven by a young asian kid. Didn’t think I’d be ‘Chinesed’ out here in the burbs (Tri-Valley, Bay Area), but maybe its the handful of community colleges out here. I guess that would also explain the Bentley Cont, Gallardo, Model X, many Porsches, and a few Range Rovers along side my ’08 Honda Fit.
Does this make REITS look more attractive as a play on this long term trend? I have been toying with the idea of increasing my allocation to VNQ. Very interesting…
Very interesting article.
Being originally from Albania I grew up hearing a lot about the times when China and Albania were best buddies. During the time when Mao was establishing his government, after the civil war was over he was struggling with being recognized internationally as legitimate leader and government.
While small, Albania had quite a lot of political influence internationally at the time, and helped China join the UN, and during that time Chinese ships would travel with an Albanian flag on them. On the other hand China was quite generous with Albania, by bringing its engineering expertise to build various factories and power plants for free. :D
They even started teaching Chinese in schools for a while. My parents still remember some Chinese songs.
Do you think the obsession with real estate is also related to the feeling of having a house, and a safe place. I say that because in Albania the culture revolves around Home. Hospitality and family can all be tied to having a house you own 100%.
The Chinese seem to show some interest in the small Albanian market too lately, with various construction projects. The latest news I heard was Geo Jade Petroleum buying the Canadian, Bankers Petroleum who owns the biggest onshore oilfield in Albania and Europe, for about half a billion $.
Living in Silicon Valley, there are many ghost homes in my area – places which have been bought but no one is living in.
Over bidding on homes keeps the prices high, but I’d rather have real neighbors…
Or maybe not. Neighbors have dogs, breakins, parties, people taking up the curb with parking. Ghost homes for all!
I currently live in Tokyo, Japan and with the current aim from the Japanese government to promote tourism into the country heading into the 2020 Olympics there has been significant increase in visitors/spending in particular from Chinese/South East Asians. Jan 2016 figures show 1.85mln foreigner tourists that visited Japan (+52% YoY), out of which 475k where Chinese (+110% YoY!!).
https://www.tourism.jp/en/statistics/
I was recently looking into purchasing a vacation property in Niseko (the ski capital of Asia) but was absolutely astounded by the prices. Several conversations with real estate agents in the area (worth noting all foreign real estate agents, very few locals) all suggest that each property stays on the market an average of 4-5 days, 95% are bought in cash out of which 98% are bought by visitors from Southeast Asia! As an example, a new apres-ski project (not yet built) is aiming for a sales target of Y4mln/m2, which compares to an average of Y2.5-3mln/m2 in Tokyo for very high end properties!! They all seemed disappointed that I didn’t want to pull the trigger THAT DAY, as clearly this is what they have become accustomed to. I feel like I may have picked the wrong industry to work (finance) and instead should have focused on real estate in the regions mentioned in your infographic above!
I agree with your thesis that if we do see further easing in regulation with the flow of money out of China, this trend will likely continue and Niseko (as well as the US and Canada) will likely be resultant beneficiaries. I have a very hard time jumping on this bandwagon, however, as it already seems to be at extreme levels. To your analogy that this is similar to the Japanese bubble in early 1990s… I agree, but we certainly know how that turned out in the end… Would be happy to discuss further if you have interest.
Thanks as always for your comments – Very insightful and enjoy reading your blog.
Eric
I’m interested to see if this become a bigger or smaller issue moving forward. China is in a position to decline (or at least end their hyper growth). So either the rich will have less money OR they will be looking to move it out of the country even faster.
All the money we spent on those ‘made in China’ products that we have been buying for decades is now coming back and investing..hopefully it doesn’t turn into a monopoly game situation where we can’t buy in our own main cities. That already seems to be in the case in London except for the rich.
Like I’ve said in one of your previous articles, Chinese influence is also being felt in Australia too. Our own city, Melbourne, is the one that appears on your map. Australia has introduced a rule for foreigners that they can only buy new property, so that supports construction and also means us Aussies can buy the current property out there. There is still a flow-through effect on prices though.
I suppose the phrase ‘you can’t buy class’ is applicable to your neighbour, I wouldn’t enjoy them at all, they probably think they’re better than you too. I’m not sure why they (new wealth) have such poor behaviours. When the parents retire and the money runs out, lets see what they do then.
Australia has been benefiting for quite a while with China buying up all our resources, so at least it’s been a 2 way street so far. There’s also a big scope for our financial institutions / retirement funds to be the finance advisers for the Chinese.
I truly hope your experience isn’t ruined by your neighbour and they learn how to be respectful to the people around them. Probably not though. Maybe a quieter place in California is calling to you.
Tristan
One way to profit is to move to Palo Alto to get cheap housing. Here is how. (I dont believe it myself!)
Palo Alto city officials have outlined an eight-year affordable housing plan. People earning $250,000-a-year should qualify for subsidized housing in Palo Alto, according to a new proposal.
The well-heeled California neighborhood, where a plot of land recently sold for $2.7 million, is home to some of America’s richest entrepreneurs who work a few miles away in Silicon Valley.
With house price averages an eye-watering $3 million, even those earning $250,000-a-year are spending two-thirds of their monthly salary (around $14,000) paying off their mortgage.
It means workers such as teachers, janitors, firefighters, social workers, police officers and more are not paid enough to afford the local rent, driving up congestion as they commute in.
Now the City Of Palo Alto has outlined a proposal to combat the issue – with price guidelines unlike any other in the country.
I picked other. Initially I was going to say yes but I’m in an area that isn’t a hot spot for investment.
This is a very interesting article. I understand how this might concern some people. But my question is, isn’t it good for our economy that the Chinese are spending money in America?
My view on the Chinese spending their money in America is that they’re helping stimulate our economy. By purchasing real estate in America they may be driving up real estate prices in your neighborhood (which is good for you if you ever choose to sell your home), but they’re also spending money on other consumer goods, which helps out small businesses and increases employment.
I also read somewhere not that long ago that the U.S. government is also handing out visa’s to wealthy Chinese individuals in exchange for a hefty investment in business development and commercial real estate projects.
So in some sense our government is encouraging them to come to the U.S. and spend money.
Hi Sam,
I’ve been a reader for 3 months ever since my coworker recommended your website. I’ve really enjoyed your content and perspective. I was born and raised in SF and I think I managed to find the house you mentioned on a real estate website fairly quickly.
Anyway, I was wondering if you could provide you perspective on why the buyer felt the need to OVERBID on a house that was clearly stale. I’m thinking that if the buyer took 5 minutes to research the property and realized it was on the market for a couple months or so then why did they need to go over asking. At the most they could’ve went @ asking price?
Maybe some people have so much money to burn they don’t care (especially if they didn’t earn it)?
Anyway appreciate your thoughts!
All you need is one other interested party. The agent said basically two buyers came in late, and that’s when the bidding war started. From a p/sqft basis, it was a good buy. But there just aren’t that many $2M+ houses in the neighborhood YET. But perhaps now, houses for under $2M won’t be available as readily anymore with a view.
Wow thanks for the quick response. That makes more logic now!
Not chinesed per se but here is a quick anectdote. Down the street from me in my very middle class neighborhood a lower end single story version of the cookie cutter track houses was purchased by a Chinese family. They immediately leveled the place and built a much larger two story as big as could fit in the lot. Every member of the large family drives a relatively high end car (Mercedes, beamer, audi, tesla S). It kills me that every day I see that sweet Tesla P85D parked on the street (no room in the garage). Can you imagine having to park a 120K Tesla on the street in a very middle class neighborhood?. My wife thinks they are doing something nefarious to earn money and are “hiding” in our neighborhood since people with that kind of money would surely buy in a much nicer tract. Kind of on oxymoron isn’t it?… flaunting the house/cars yet living in a middle class neighborhood (not flaunting).
Any thoughts on the dichotomy Sam?, curious how you would view it.
Hi Sam! Great article. Longtime reader, but first time commenter.
I have been living in China for 5 of the last 6 years, and moved back to SF last week. I am living in the Sunset, so reverse culture shock has yet to set in.
Personally, I think that the Chinese investment wave is over hyped for a few reasons.
1. A lot of people view Chinese money has a quick way to make an easy buck, or believe that it is easy/stupid money, its not. Especially in Real Estate. At the corporate level Chinese investors are much more picky than US investors as the returns for RE development in are much higher in China (CAP rates normally 20+). The deals that do go through are the big ones (1st and Mission,Oysterpoint) or deals in which the CEO from a Chinese capital partner has an existing relationship with the CEO of a US development firm. Such as the 2013 Tishman Speyer/Vanke deal that busted open the door for Chinese RE companies investing in SF. R&F Properties is notable the biggest exception.
As far as HNWIs are concerned, for every 22-year-old client that buys the property after a quick look, or via wechat there are countless untold stories of real pain in the ass Chinese clients. In my experience restate agents are a disposable commodity in China, you easily have 4-5 at the same time, spend an entire day with one only to rent or buy from a totally different one. Also the fee you pay to your agent is much lower than the 2.5-3% you pay in the US. I believe its 1-1.5%.
As a personal anecdote, my dad (white American, doesn’t speak Chinese) is a real estate agent on the east side of Seattle (Bellevue/Mercer Island) and has had a number of Chinese clients. Some he has developed a very good relationship with, and one in particular has bought a number of houses through him. Others have completely wasted his time. He will spend a weekend showing them around and educating them on the market after which they are never heard from again. Even the client he has done multiple deals with have proven very different (and more difficult) than your average American client. I have had to translate for him with this client on multiple occasions, as well as talk him through particular cultural differences that he encounters.
My point with this is that not everyone in the US is position to capitalize on Chinese money. I believe your point is that you should learn Chinese and Chinese culture to be able to capitalize on Chinese money. However, even if you speak Chinese and know Chinese culture, this still doesn’t mean that you will capitalize on Chinese money. As a low trust society, the ways of doing business in China are very different, and I believe very frustrating even to Americans that understand China/Chinese.
2. I agree that Chinese LOVE real estate, but I don’t believe that they are particularly good or savvy investors. I think that they invest in real estate because that is pretty much the only viable investment option in China. It is what they know, and is what they are comfortable with.
An important point here is that the Chinese real estate market has done nothing but go up for the last 30+ years. The Chinese real estate market emerged remarkably unscathed from events like the Asian Financial Crises and the 2008 recession. Even with the recent slow down in 2nd and 3rd tier cities, the prices in 1st tier cities like Shanghai and Beijing continue to rise, and Shenzhen is up near 50% from a year ago!
As the US RE market is nearing the top of this cycle, how will all these Chinese who have bought houses react when they experience their first ever-downward cycle? Do they hold or panic and sell? What about all the money in China that has been eyeing the US? Do they see it as the opportunity it is or get cold feet and stay away?
Thanks for the great post!
This has been my experience as well. In my new neighborhood, I met Chinese families that bought million dollar condos here in San Jose for cash, have their children live in them for free, then plan to retire here i a few years.
I guess you can say I’ve been Chinesed…even though I myself am Chinese (though an ABC). My MIL was looking for a multifamily house to live in and rent out. We were looking at properties in the $800,000 range and the real estate brokers asked if she would be paying CASH!! HUH? Wow…if I had $800,000 liquid cash… And as for me, we were looking at co-ops in Queens and we were outbid a few times and they turned out to be Chinese though I’m not sure if they were wealthy Chinese investors.
Sam,
Everything you say is true. I’m married into a Chinese family and I can verify taht you are correct. I’ve been to China more than fifteen times.
The older generations are very thrifty and financially conservative. The younger generation with (gifted) money want to spend it like there’s no tomorrow.
Two articles that tell:
https://www.nytimes.com/2016/02/14/business/dealbook/chinese-start-to-lose-confidence-in-their-currency.html
https://www.newyorker.com/magazine/2016/02/22/chinas-rich-kids-head-west
San Francisco is becoming more and more of an international city every year and that does include a lot of mainland Chinese. You bring up a lot of good points and observations. This reminds me of a video I saw last year about the super rich kids of mainland Chinese in the US who are exactly as you described – anti stealth wealth. In the video it showed how these kids are all buying six figure cars and getting them covered with custom paint/film that’s colored as flashy as it gets – neon and bright colors – just like that green masarati your neighbor has. I’m not a fan of a “look at how rich I am” type of attitude in general. I hope your neighbor settles down asap and stops being loud and obnoxious!
You mean like this video?
These things are very true, I live in Irvine where over 50% of new homes are bought by Chinese nationals. Time to learn Chinese.
Interesting article. I’d also suggest a similar dynamic is happening with Indian migration to the west. There are literally tens of thousands of well educated young Indians that have moved into the technology sector in the Bay Area. Previously they typically lived in small pockets in Berkeley, Fremont and San Ramon but you see a lot more of a presence now in Rincon Hill, Noe Valley, Glen Park, Potrero Hill and down in the Peninsula in areas like Burlingame & Palo Alto. They often have high net worth and are interested in purchasing premium products from clothing to cars. It makes it virtually impossible for a working class kid who graduates from SF State or City College to purchase property anywhere.
And the trend will continue. India’s brightest and wealthiest, who graduated from an IIT will continue to come to the US, get great jobs, make great money, and stay. I’d love to read an Indian version of this article!
Hi Sam! Great article. I enjoyed your analysis of the relationship between China and globalization.
As the son of two hard-working, humble, and wealth-conscious naturalized Chinese people, I can’t say that this general stereotype applies to all Chinese people. Living in Hawaii my entire life, I have noticed a significant increase in visitors from Mainland China who behave in these types of manners. However, I still believe that people are the products are their environments, and will not generalize based on my experiences serving Chinese customers in my various part-time jobs.
I am currently attending the University of Hawaii and am interested in capitalizing on this current trend. I’m currently majoring in Finance and Management, and will be studying abroad in Shanghai next semester. Although I speak Cantonese, I am interested in improving my Mandarin while I am there. Hopefully, I will make some meaningful connections that will guide my future in the right direction.
Living in Hawaii, do you think real estate is a viable option for a future career? Asking since I know you are familiar with Hawaii and have solid experience with money.
Let me know what you think,
Ricky
Also, I’d like to hear about how you got involved with a company that manufactured eye-glass parts. Living and working in China is a possibility that I am willing to explore, but that will depend on my study-abroad experience.
Let me know your thoughts!
This article definitely can’t speak to all Chinese people, nor can it even speak to all wealthy Mainland Chinese people who buy up assets internationally through interesting means. Perhaps the article is squarely directed at the couple of early 20-something year olds driving $120,000+ cars at full speed in a quiet neighborhood while living in a $2.25M home their parents bought them.
All I’m trying to do is 1) make people realize Globalization is here, and to be ready for foreigners eating our lunch, and 2) provide some insights into how mainland Chinese people think and feel from my own lense of studying China since 1997.
I’d definitely learn MANDARIN. And if you can become a go to real estate agent for mainland Chinese looking to buy in Hawaii, then I am pretty sure you can make a very good living. Everybody in SF is looking to figure out how to tap the China demand market. Same thing happening in NYC.
Hawaii is a no brainer b/c it is the closest US state to China. The Japanese bought up Hawaii, I fully expect the Chinese to as well.
Thanks for the reply, really appreciate the input.
It seems that we both share similar outlooks on the mainland Chinese due to our interactions. I took a class on international relations and learned about globalization and its effects on countries in varying scales. I’d love to hear more about your personal experiences in mainland China!
Recently got a scholarship and am interested in interning at the American Chamber of Commerce while I’m there.
Let’s chat sometime? I feel that I have a an interesting perspective to offer as a millennial. There’s a lot that I could learn from you, as well.
Another great article Sam! Really enjoyed this one, as I love learning about other cultures…I had no idea how wealthy the Chinese are and how they transfer the wealth into our country.
The story about the taxi cab driver also drove home to me how lucky I am that I was born in America! There are so many more class mobility options here it’s crazy.
One last thought: Do you think Kobe Bryant would have changed his number from 8 to 24 if he had known this? It would make more sense to keep 8 and completely dominate the Chinese market. He was already popular internationally and it seems like a bit of a misstep to go to number 24… Oh well. He is still pretty wealthy so I doubt he cares too much:)
Class mobility is one of the GREATEST things we have here in America. So many people have come from nothing to create great companies, great movements, and great wealth for themselves. It is so much harder in places like China, and even more so in India to break beyond your class.
Kobe should have kept his number at 8. Maybe 88 to be even better!
LOL, 88 would have been sweet! You really are hustling to reply to all these comments man…keep up the awesome work!
Sam,
Good, through article, great points. Yes, I see and feel the impact of the Chinese buying in San Francisco and NYC.
But as a native American-Chinese, I take issue
with your coinage of the term “chinesed.” Negative connotation and derogatory like “welshed.” Too visceral? Perhaps. But is it necessary?
I don’t mean for the word “Chinesed” to be derogatory. It’s just adding a “d” at the end of Chinese. A word is only derogatory if it is believed to be so, and used in a derogatory way that follows. It’s kind of like how comments are reflections of people’s feels. We see what we want to see.
My article provides some cultural insights and ways Chinese people think as a Chinese American myself who grew up living in Taiwan for four years and China for 7 months in the 90s as a study abroad student.
Many of my friends are chinese. The saying goes that wealth lasts three generations and that appears to be the case. I have some friends buy a new porsche for their teen against my advice. Sure enough he was racing it over 100mph.
Their mentality is that they save $100k for a new Honda Accord because they have high tarrifs on imports and are thrilled when they get here and realize they can buy a luxury vehicle for that amount.
I’m happy they are spending their new wealth here, but I would like to see a small tax on high priced luxury goods. It would help our deficits and America would still be a relatively great place to shop.
Good point on the high car import taxes they face. It’s the same way in Singapore, Malaysia etc. When their Honda Accord costs $110,000 in Singapore, why not buy a Porsche 911 that costs $110,000 in the US! Great Value at 50-60% off local prices.
You cant compare. 90% of chinese are poor living in total impoverished conditions. They aren’t allowed to live in big cities. Big city businessmen make money by exploiting their own farmer workers for $5/hour. The price for Chinese cars are more expensive because China and Singapore tax is only 15%. Its double that in the US. If I only paid 10-15% I could also pay for a maserati. The governments of Singapore and China also gave free apartments to every city person. If I had a free house I also could buy gucci. You cant go to a chinese hospital or doctor and feel safe because they have no education or skill and Chinese air is filthy. In America we value human life, healthcare, and welfare and we dont let people live on the street or die on the street. Having less disposable income, better health care, better medicine, and regulations is the price we pay for having a higher quality of life and for all Americans. There are some things we need to fix such as stop fighting wars and stop allowing rich investors to pay 14% cap gains on passive income when it should be 35% like working people, end corporate welfare, and stop allowing Chinese to buy our land so we can save money and invest it instead of spending all of it on rent or a mortgage and having nothing left to invest. If we can fix that we will again be far wealthier than all other nations and people like Bezos wont have 120 billion but your average middle class guy will have a superior lifestyle. Does anyone recall the 80s when everyone had disposable income? I sure didnt forget.
You made a lot of good points, Sam. I have been reading your blog for a while, but this is the first time I feel compelled to comment. I am a Chinese and I came here as a PhD student on a full scholarship almost 30 years ago. My family has achieved the American dream the first hand – going from international students with $50 in the pocket to owning multiple properties in the SF bay area. I want to point out your neighbors do not represent a Chinese culture that is hard working, thrifty and respectful of others. The Chinese of my generation grew up without enough food, so we work twice as hard, spend half the money as our American counterparts and often try to avoid conflict at all cost. (I am not proud of the last part, but growing up with Chairman Mao can do that to you.)
How to benefit from us as you may ask? We are the worst consumers because we don’t buy anything unless absolutely necessary. But Chinese people are willing to spend money on educating their children, more than on anything for themselves. And there are over 1 billion Chinese who are willing to open their wallet for their children. There you go.
Good point on education! I must add that.
The mainland Chinese today seem VERY different from the Chinese of 30 years ago, or even 20 years ago when I was there as an exchange student.
What happened to the thrifty and respectful culture of the past? I think it has to do w/ wealth levels. Doesn’t sound like you or your parents were that wealthy back then? Maybe the culture of humility is still the same.
Interesting read. Coincidental timing as well with this NYTimes post on China’s rags to riches…
https://www.nytimes.com/2016/04/03/magazine/the-fall-of-chinas-hedge-fund-king.html?_r=0
My son is an engineer for a major aerospace firm. This is his reply to Sam’s article:
Whoops, there was a typo early on:
“Entrepreneurship, skilled emulation of Western businesses, and perhaps a little government help are the keys to such massive wealth creation so quickly.”
I’ll fix it:
“Systemic, methodical, and shameless thievery of Western r&d, technology, and business practices spearheaded by and with the full support of the chinese government are the keys to such massive wealth creation so quickly.”
Ok, ax the rest of the article and start writing the rest from here.
Haha, nice. I like how you caught my line “skilled emulation of Western businesses.”
Why create something new when you can copy right?
“Good artists copy, great artists STEAL.”