Chinese investors buying up San Francisco real estate

Last month, California's median home price experienced its biggest gain in more than 33 years, according to the California Association of Realtors. But it didn't put off wealthy Chinese who have been pouring money into Golden State real estate.

The San Francisco Bay Area is seeing a tremendous surge in real estate investment from China. According to the San Francisco-based Asia Society, California is on track this year to receive record investments in both commercial and residential real estate.

The society recently held a panel discussion on "Courting the Chinese Buyer: The New California Real Estate Boom". The experts there agreed that Chinese investment in Bay area properties would continue to be strong.

Yat-Pang Au, founder and CEO of Veritas Investments Inc, one of the largest owners and operators of apartments in San Francisco, said that one of the reasons it made sense to invest in San Francisco was that it is a true cosmopolitan city recognized throughout the world, but still one of the cheapest. Au called it "a natural fit" for a Chinese investor.

"We have good schools, a safe environment, clean air," Au said. "It is a relatively safe investment in real estate."

According to the National Association of Realtors, buyers from China are now the second-largest group of foreign investors in US residential real estate (after Canadians), spending $9 billion in the year ending March 2012.

While Chinese individual investors are focusing on residential real estate, Chinese enterprises are making an even harder push into the commercial market.

Chinese developer Zarsion Holdings Group inked a deal to build a $1.5 billion waterfront development in Oakland, California, during Governor Brown's trade mission to China in April. There is also a joint venture underway between China Vanke Co Ltd and US firm Tishman Speyer Properties to develop luxury apartments in San Francisco.

Wilson Chen, president of Portland-based American Pacific International Capital, thinks that China's slowing economy will not slow down Chinese investment overseas; on the contrary, he believes there will be more people looking to diversify their portfolios with investments outside of China.

Chen said that inflation in China was huge and in the international currency market, the US dollar was weak against the Chinese yuan. "When Chinese investors come to the US to invest, they pretty much grab the money off the printing machine and come over here to buy cheaper stuff," he said.

Chinese investment in the US hit an all-time record in 2012 of $6.5 billion and will likely surpass that level in 2013, according to the research firm Rhodium Group.

Leonard Rosenberg, head of the Palo Alto-based law firm Mayer Brown, said investment growth in China goes beyond market forces.

"I think there are policies in place to encourage Chinese investment, particularly the state enterprises," Rosenberg said, noting that Chinese insurance laws were modified to allow state-owned insurance companies to invest in real property assets.

Rosenberg also mentioned a recent Bloomberg report about China's official overseer of foreign-currency reserves talking about potentially investing in US real estate.

"It makes sense that they will want to move into real estate in general," he said. "US real estate is very transparent and a low barrier entry sort of industry."

The experts suggest being aware of the cultural gap between US and Chinese investors. Because the Chinese are usually thinking differently in terms of what their US partner can offer.

"There are some gaps that cannot be bridged," Chen said, "primarily on the financial structure side, but also some on the legal structure side that they don't understand."

As an example he mentioned that China has no property tax, so when Chinese people come to the US to buy property, they say, Ok, that's cheap, then buy it, without realizing what they're getting into.

Yuwei12@chinadailyusa.com