The Chinese are buying more residential properties in the U.S., to put their money into safer ground for investment reasons, as well as to bring their children to good schools. No longer targeting only Los Angeles or New York, buyers have honed in on prestigious Bay Area enclaves like Old Palo Alto, according to agents who work there.
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Palo Alto is an interesting example of what they’re looking for and what they value. It isn’t Silicon Valley’s priciest zip code. In fact, based on our most recent rankings of America’s Priciest Zip Codes, Palo Alto is the ninth-most-expensive zip in Silicon Valley, No. 38 in the nation. But with the Chinese, it’s got cachet, thanks to high-ranking public high schools Palo Alto and Gunn, and the distinction of being the place Steve Jobs lived. Ken DeLeon, a sales agent who says he is No. 1 in Silicon Valley based on 2013 MLS sales, says demand is driving up sales prices in a hyper local way. In 2006, the average home sales price in Palo Alto was only 3.34% higher than neighboring Menlo Park, DeLeon says. “Now it’s over 38.96% higher,” he says. (To put that into context, average prices for Menlo Park have risen from $1,468,006 to $1,701,218, according to MLS numbers. In Palo Alto, they’ve jumped from $1,517,155 to $2,363,936 this year.) To Americans, the two neighborhoods would be about equally desirable.
To capitalize on this trend, DeLeon this year has taken two trips to mainland China this year to recruit potential buyers. He’s confident enough in the demand that he bought a 14-seat Mercedes-Benz bus and hired a director of Asian operations, Kim Heng, who takes potential buyers on tours of Palo Alto and nearby cities twice a week. Builders, too, are tearing down old Palo Alto charmers and replacing them with newer homes that appeal to the Asian buyers, DeLeon says. “They know the Chinese buyers will pay a premium for new construction.”
Asian investors accounted for 54% of the international buyers purchasing homes in California for the 12 months ending in March, according to a report by the National Association of Realtors. About 6.3% of existing homes went to foreigners, more than half of those to buyers who don’t live in the United States permanently and don’t plan to live in the properties full-time. About 7% of the transactions were for homes over $1 million, like the ones found in Palo Alto. California is the No. 2 target for international buyers, behind only Florida, and the biggest foreign buyers are Asians. Compared to China’s richest cities, property in the Bay Area is relatively cheap. In Shanghai and Beijing, property is over $2,000 per square foot; in Hong Kong it’s over $2,500. “When I was showing buyers that this is all you get for $2.5, $3 million, they’re like, ‘Wow, you can buy a house?’ They think it’s a good deal,” DeLeon says.
If Palo Alto is a pocket of niche demand, homes in San Francisco are of course the ultimate trophy properties. But parts of the East Bay are also coming into vogue because of features that appeal to Chinese buyers. In 2000, the East Bay suburb of San Ramon had an Asian population comprising 12%, according to the U.S. Census. By 2010, the Asian population had grown to 35%.
“In the East Bay, there are a newer homes in the community,” says Ellen Osmundson, a managing partner at MJ Real Estate International who emigrated from Hong Kong 24 years ago. One 5,000-home, Windemere new development attracted a lot of Asian buyers, many Chinese, as did a second another 5,000-home new development nearby.
“Chinese people in general, they just love to buy real estate. It is in their culture,” Osmundson says. “Before, we saw them coming as college students and with PhD degrees, but now Chinese parents are sending their kids to high school. The mom will be here living with the kids, and the dad will still be running the business in China.”
This June, Edmundson went to China with a delegation of 45 fellow Americans for a 10-day China-U.S. Real Estate Summit, with stops in Shanghai, Beijing, and Shenzhen. The Summit was basically an opportunity for sales agents like Osmundson to present their locations to potential buyers. But there was one thing, she notes, that she doesn’t have to educate buyers about when they land here in the U.S.
“It’s all about schools,” she says. “They come already with the school list in their hands.”
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