The National Association of REALTORS® recently released the 2014 Profile of International Home Buying Activity. If you are interested in growing your global business, and you haven’t already reviewed this report, download it today. Included is a tremendous amount of information on foreign investment- data that should be on all global agents’ radar.
The big news from this year’s report is that international investment in U.S. residential real estate has grown significantly in the last year. Favorable exchange rates, low prices and rising affluence abroad continue to drive international buyers to the United States. According to the report, for the period April 2013 through March 2014, the total international sales have been estimated at approximately $92.2 billion, a 35% increase from the previous period’s level of $68.2 billion!
China- The Big Investors
International buyers come from all over the world, but Canada, China (The People’s Republic of China, Hong Kong and Taiwan), Mexico, India and the United Kingdom accounted for nearly fifty-four percent of all reported international transactions. While Canada maintains the largest share of purchases, dropping from twenty-three percent in 2013 to nineteen percent in 2014, China is the fasting growing source of transactions, now accounting for sixteen percent of all purchases, up four percent from last year. Additionally, China leads the way in dollar volume. Buyers from China purchased U.S. residential properties estimated at $22 billion in total value- approximately a quarter of all international sales.
Agents working with Chinese clients know that this buyers’ group can be lucrative. Chinese buyers tend to buy properties in higher-priced markets, spending, on average, $590,826 per property. This is more than $340,000 greater than the mean price of a domestic buyer. Just imagine the commission potential if you are able to tap into the Chinese investment market!
Locate Opportunities in Your Local Market
How can you take advantage of Chinese opportunities reaching U.S. shores? The first step is conducting research in your own backyard to determine what properties might appeal to high-net-worth Chinese investors and what ties might already exist to connect with them. Chinese investors are often looking for high-end, luxury residences; apartment complexes with a history of good occupancy rates and steady income, but under distressed ownership; and hotels, office buildings or restaurants in need of financial partners. No matter what your real estate focus, start by making local connections.
- See if your local REALTOR® association has a Global Business Council. If so, ask if they are making efforts to develop business in China. If not, contact NAR Global (NARGlobe@realtors.org) to inquire about other initiatives in China or investigate NAR’s global alliances at realtor.org/global_alliances.
- Check with your Chamber of Commerce or local Economic Development Office to see if they have any Chinese visitors coming to your city. Offer your assistance and build contacts at your Chamber. Look into SelectUSA.gov, formerly the Invest in America program, a Department of Commerce effort to encourage foreign direct investment in the U.S.
- Contact Chinese companies with facilities in your market to offer your services to their executives and management, and discuss their plans for the future. Ask if they are aware of other Chinese companies that are considering expanding to the U.S. or establishing manufacturing here, especially if your market has unoccupied industrial or commercial property and a skilled workforce.
- Reach out to local colleges and universities to learn if they have programs to attract Chinese students. Contact international recruitment officers to see how you can become involved in their programs to attract students from China.
- Find out if there is an EB-5 Regional Center in your area that is looking for overseas investors. The U.S. Citizenship and Immigration Services (USCIS) publishes an updated list of all current Regional Centers; to access it, go to uscis.gov and enter Immigrant Investor Regional Centers in the search box.
Establishing Connections in China
After you have identified opportunities in your market, the next step is connecting with Chinese nationals with the funds to invest in them. To your prospects, traveling to China shows your interest in and commitment to doing business with its people. Unlike many Westerners, the Chinese expect to get to know you in person before conducting business with you. If you are considering planning a trip to China, there are several routes for making business connections there:
- Attend a Chinese real estate expo. Huge numbers of investors flock to expos looking for residential, industrial and commercial properties abroad. There you can mingle with real estate professionals from China and all over the world, along with investors and their representatives searching for global opportunities.
- Meet with sponsors of home-buying trips to the U.S. There are companies in China that put together groups of high-net-worth individuals for multi-city tours, usually of luxury and investment properties. Introduce yourself and make them aware of the opportunities and attractions of your market.
- Join a trade mission to China. Your initial research may uncover an upcoming REALTOR®-sponsored trade mission, or a trip organized through your state’s Economic Development Office or Chamber of Commerce. If so, consider getting involved early, during the planning stages.
- Identify and meet with investment advisers with wealthy Chinese clients. These include Chinese firms and American lawyers, financial advisers and real estate advisers who have offices in China.
- Meet with Chinese real estate agents to network and promote your listings and provide more information about your area.
Tip: Make sure that for all your dealings with Chinese nationals, you have someone accompanying you who understands the language and can translate for you. Additionally, learn and be able to use common Chinese phrases and greetings; it indicates you are trying to meet them on their ground.
Know the Ins and Outs of Working with Chinese Clients
Chinese conduct business based on social relationships and trust, turning your leads into sales may take far longer than you are used to. Some things to keep in mind:
- Don’t expect immediate results. Your Chinese contacts will want to get to know you personally. This may require more than one visit and lots of time socializing.
- Become acquainted with Chinese social practices. Learn their ways to better understand where they are coming from and make your clients feel comfortable.
- Be formally polite in your business dealings. Chinese business etiquette is very important in Chinese culture. It’s best not to use colloquialisms, slang, or make jokes that may be misinterpreted.
- You’ll become a “client/friend.” In China, business associates get to know one another well socially. They know each other’s families, visit one another’s homes, and know their associates’ circle of friends.
- Expect awkward questions. Your contacts may ask questions that, in our culture, might be considered overly personal, like, “Are you a millionaire?,” “How many properties do you own?” or “What is your net worth?” These questions are meant to gauge your business status. Handle them comfortably and politely, indicating that your status is appropriately high enough to be dealing with them.
- Offer respect. The Chinese are very proud of their culture and accomplishments. Be properly deferential and respectful when visiting and touring in China. Our history is very brief when compared to China’s 7,000 years.
Real estate practices vary a great deal from country to country, and the Chinese, like most other foreign nationals, are not necessarily familiar with how business is done here. As an agent serving Chinese clients in the U.S., it’s important to have an understanding of how real estate is practiced in China so you can be aware of the differences. An effective agent will be able to communicate the variances and explain the steps in the American purchase process, including the roles of every party in the transaction.
You may want to keep these things in mind when conducting business:
- Many Chinese purchases are done in cash. Though there are limits on individual transfers of funds out of China, most funding will come from offshore sources, like companies set up in other countries.
- Determine your client’s motivations. The Chinese are not known as impulse buyers. If a client is interested in your market, than chances are they are already connected to it in some manner. Take the time to deduce and understand that connection. It could help you close the deal or strengthen your referral business.
- Support financial projections with historical returns. In Chinese business deals, due diligence is expected. Your clients may want to review the data supporting your calculation of expected returns on the purchase, even on residential property for self-use. When estimating investment returns, remember that most Chinese clients will pay with cash, eliminating the mortgage interest deduction for any clients subject to U.S. income tax.
- Learn a little about the concepts behind feng shui. Many Chinese take them into consideration in selecting properties.
These are just a few tips to consider. But, if you really want to hone in and grow your Chinese business, be sure to do your homework. Become familiarized with their cultural and business practices and make sure you are prepared and are able to anticipate Chinese buyers’ needs. If you are effective in serving these customers, there is a good chance repeat and referral business will come knocking.
To learn more about working with Chinese buyers, sign up for the Certified International Property Specialist (CIPS) course, Asia/Pacific & International Real Estate. Classes are offered both online and in the classroom.