With Foreign Competition Waning, Now Is the Time to Invest in California Real Estate

The number of overseas buyers snatching up California real estate has gone down by 50 percent, opening to door for twice the investment opportunities.

Halloween may be over, but we have a treat for you: Bloomberg Business reported1 on Oct. 8 that Chinese buyers are slowing down their rush to snatch up California real estate investment property. This is great news for California investors, especially as home prices continue to rise. Currently, international buyers account for less than 4 percent of the market share (down from 8 percent), and California home prices are set to rise 6.5 percent, making the investment returns potentially higher.

Why California?

You might be asking what brought foreign investors, particularly Chinese buyers, into the California real estate market in the first place. China is emphasizing improving its own country’s infrastructure, so what made California appealing to so many buyers?

Many of the same reasons it appealed to you, most likely. The real estate slump here in California brought in many Chinese buyers initially; they, like you, capitalized on the opportunity to snatch up foreclosed and distressed homes and turn the residential properties into rental income. With a plethora of top public higher education institutions – including the prestigious University of California system  – the real estate market also pulled in families overseas hoping to buy-and-hold property in order to provide their children a place to live while studying in California.

However, the honeymoon appears to be over for the Chinese buyers, and the primary reason is that it’s too hard for the investors to conduct financial transactions overseas. Currently, China has a cap on the amount of money investors can send abroad, and the limit is set at $50,000. Consequently, many buyers were faced with the choice between purchasing homes within a very narrow and low price range or lying about why they were sending money to California. The news that home prices are going up also appears to be reducing the percentage of overseas real estate investment in California. With an exchange rate where the U.S. dollar currently has the advantage, it’s even harder for Chinese buyers to purchase properties within their homeland cap.

The Precipice of a Sea Change for California Real Estate Investors

According to CNBC,2 Chinese buyers were primarily purchasing entire ground-up housing tracts and anything they could turn into rental property, especially fix-and-flip and buy-and-hold property. Lots of investors like you left the market a few years ago as competition was becoming too tough. They couldn’t compete with the Chinese buyers who came in with the cash-on-hand that they didn’t have, and they watched helplessly as properties were swallowed up by overseas investors.

Now, don’t get us wrong; this isn’t a bad thing. It boosted the economy, and brought the real estate market back to where it should be. Now we’re poised at the point where patience is about to pay off: with a significant portion of the competition pulling out, now is your chance. The percentage of Chinese buyers in the California real estate market has been cut in half, which opens the door for local investors to step in.

Smart investors know when a market is about to change, for good or for ill. It seems strange that your business is tied to arcane laws regarding Chinese currency, but in a global marketplace, you have to be prepared to make a move at all times. That means having access to cash regardless of your credit situation. Even with the rebounding market, cash flow may still be a problem for investors. But that doesn’t mean the only option is stepping away from the market yet again. Once you have secured your equity, a Socotra Capital hard money cash loan can help you turn the house around to succeed in an improving market. The field is open; Socotra Capital can help you get back in the game.

  1.  Bloomberg Business, “Foreign Home Buying Drops in California As China Slowdown Seen,” http://www.bloomberg.com/news/articles/2015-10-08/foreign-homebuying-drops-in-california-as-china-slowdown-seen
  2. CNBC, “Chinese Buying Up California Housing,” http://www.cnbc.com/2013/11/25/chinese-buying-up-california-housing.html

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