March 2019

With luxury markets slowing, sellers must demonstrate the long-term potential of their homes to attract foreign buyers

Chinese investment in overseas real estate has slowed recently from its frenetic pace. A number of factors are behind the change, including the Chinese government’s restrictions on outbound investment and stricter regulations on the part of the U.S., leading to an 83% drop in Chinese investment in the U.S. in 2018, according to a report from the global law firm Baker McKenzie.

However, the decrease in overseas investment from Chinese buyers may not be for the long term, some real estate analysts predict. And while luxury homes may take longer to sell than in previous years, the slower pace of sales represents a normalization of the market, not a downturn. With this in mind, sellers of luxury homes should consider targeting other groups of buyers from Latin America and Europe, for instance—and emphasizing the long-term investment potential of their properties.  

“Given the size of the Chinese market and its emerging middle class, personally I do not see a significant slowdown long term on foreign investment from China,” said Jamie Mi, partner and head of international division with Kay and Burton, a real estate brokerage in Melbourne, Australia. “We expect that such investment most likely will be operated quietly and modestly, not as loud as before.”

In addition to buyers from China, buyers from Canada, the U.K., India, and Mexico are the top investors in residential real estate in the U.S., according to the National Association of Realtors. Canada and the U.K., meanwhile, attract more European buyers, so sellers in these regions may want to set their sights on these groups of buyers.

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

But given the global slowdown in investment predicted for this year, international investors, regardless of nationality, are making their buying decisions with greater deliberation than before. This means sellers must brace for the possibility of their homes lingering on the market for longer, and should keep in mind the types of properties and locations that most attract investors from overseas.

Foreign buyers of luxury property tend to be savvy world travelers, and therefore hunt for what they consider high-end homes in central, in-demand neighborhoods, Ms. Mi said. Fortunately for sellers, this translates to a range of home types.

“They are buying boutique apartments, penthouses, and prestige homes in the most sought-after suburbs,” Ms. Mi said. “There is also a percentage of buyers looking for big land with heritage homes [homes listed on Australia’s heritage registers for its historic value].

Newer developments, especially those with name recognition and well-known architects attached, also remain a powerful draw for foreign buyers.

More: A Top Chinese Oilman Vanishes, and a Manhattan Buying Binge Ends

“There’s been a shift to looking for quality from investors,” said Edgardo Defortuna, president, CEO and founder of Miami-based developer and brokerage Fortune International Group. “They’re looking for sophisticated architecture, very well-funded and experienced developers, and in many cases, the branding behind the project.”

Investors are also seeking property with the potential to generate strong rental income for the long-term, a factor sellers should highlight when marketing their homes.

“These buyers are sophisticated financially, and may be planning to rent out the property for a few years and eventually retire,” said Daniela Sassoun, a broker with Douglas Elliman in New York.

The Impact of Chinese Buyers in Foreign Markets

Their investment in international real estate may be slowing down, but the Chinese still represent the largest cohort of foreign buyers in many top markets. In London, for instance, the brokerage Knight Frank found that buyers from mainland China made a third of all real estate purchases by foreigners in 2018. In Australia, too, China still accounts for the largest share of foreign investment in residential real estate.

In the recent past, Sassoun said, the market was moving at a frenetic pace, and international investors were buying apartments sight unseen.

Read the full article here.