Chinese buyers are back in the Bay Area

In many ways, Bay Area Compass agent Marie Wang’s recent clients were typical of the other Chinese buyers whose numbers she says have doubled since late last year.

They were only interested in new construction. They had been stuck in China since the pandemic, but were now able to fly in from Shanghai for tours. Their personal and business connections were concentrated in the San Francisco Peninsula, so that’s where they focused their search — with extra attention on cities with name-brand cache back home. They also arrived well apprised of the area’s recent precipitous price drops and on the lookout for a deal, she said.

But in one very important way they were different from the other Chinese clients that Wang — who speaks English, Mandarin and Cantonese — usually represents. While her average buyer has a $1-million to $3-million price range, these buyers had a budget over $10 million.

Given the lack of inventory this early in the spring, and the even more sparse listings for new construction homes at that price point, she had only two houses to show them. One was in Palo Alto and still under construction. They bought the other one, in Atherton, already built and on a bigger lot, in an all-cash deal for $12.5 million, about $400,000 under asking.

More wealthy Chinese buyers are finding everything they’re looking for on the tony towns of the Peninsula, according to local agents who say the nascent trend started at the end of last year and ramped up this spring.

Their stories point toward what national figures also show: that after years of being sidelined by politics and pandemic, Chinese buyers are on the house hunt, and local buyers may have missed their chance to bid without international competition.

A Red Tide Rises, Then Falls

The peak year for international investment in U.S. real estate was 2017, with over $150 billion in foreign buyer purchases, according to the National Association of Realtors data. Chinese buyers — which the NAR defines as those from the People’s Republic of China, Hong Kong and Taiwan — beat Canada and Mexico for the share of most international buyers in the country between 2015 and 2018 with about 15% of all foreign buyer purchases.

More than half of Chinese buyers prefer the suburbs, and one-third had their sights set on California, according to the NAR report, by far the highest percentage of any U.S. destination.

Chinese demand on the Peninsula was so high nine years ago that Michael Repka of DeLeon Realty brought on a full-time Chinese marketing specialist to publicize his luxury listings in the Chinese community, and later added a full-time showing agent that speaks both Mandarin and Cantonese.

The high demand of the 2000s changed when Beijing began putting major restrictions on the amount of yuan that could be changed into other currency.

By 2019 and 2020, Chinese buyers made up only 11% of the total foreign investment in the U.S., according to the NAR.

The financial restrictions had more of an impact on Chinese investment in the Bay Area than the spread of pandemic, according to Compass agent Steven Mavromihalis.

At the height of Chinese interest in the San Francisco market, he said he used to fly to Shanghai to teach clients who had just bought new sports cars how to drive them on a race track. Around 2018 those trips stopped, he said, as the government made it “much more difficult for citizens of the PRC to export money.”

The pandemic and its increased travel restrictions certainly exacerbated the pullout that was already underway.

Chinese buyers spent nearly $32 billion buying homes in the U.S. in 2018, according to NAR data, dropping to just $13.4 billion the following year after restrictions appear to have taken hold. In 2020, even as the pandemic was already underway, Chinese buyers still purchased over 18,000 homes in the U.S., about half the number from the 2017-2018 highs. But in 2021, Chinese home purchases were down to about 6,000—a two-thirds drop in just one year—for a total investment of under $5 billion.

A 2022 Turnaround
International home buying in the U.S. fell across the board during the pandemic, but ticked upward in 2022, as the dollar volume of foreign buyer purchases was up 8.5% to $59 billion. The number went up because prices increased nationwide, meaning that a smaller number of transactions occurred but at an 18% year-over-year increase in average price.

No one increased their budgets as much as the Chinese, according to the NAR. Chinese buyers bought $6.1 billion in existing homes in 2022, up 30% from the prior period even as the number of homes purchased by Chinese buyers dropped. That’s because the average Chinese purchase price jumped from $710,000 to just over $1 million in the same period, by far the biggest average budget of any country.

Wealthy buyers are the ones most likely to be able to work through the complicated process of getting their money out of the country, especially if they already have business interests and wealthy personal connections in the U.S., agents said.

“It can still be done, but it’s a much more intense process,” Mavromihalis said, adding that Chinese interest in the Bay never died down for those who already got a substantial amount of money out before the restrictions. The ultrawealthy see Bay Area real estate as a safe investment, he said.

“People of means, all over the world recognize what Silicon Valley is,” he said. “It’s expensive and it may not go up as much as the next new thing. But they’re not going to lose a lot of money here. When you’re a billionaire, not losing a lot of money is a good thing.”

Wang said transferring money out of China is the top concern for her buyers, who turn to friends and family to help with the exchange.

If the exchange restrictions were lifted, she said “people will buy a house in the U.S. without thinking.”

There is also pressure on people to get not just their money, but themselves out of China and Hong Kong now, before immigration gets even more restrictive.

“There’s a very large group of buyers who are planning to emigrate to the US,” she said. “Because they are Chinese, the first thing they need is to buy a house. It’s a cultural thing.”

Unlike some local buyers who may still be waiting out the uncertainty of the recent banking crisis, Chinese buyers aren’t just touring. Just like Wang’s recent clients, they’re flying in, putting in all-cash offers and getting houses.

For the last five years, and especially since the pandemic, local buyers have had a reprieve from the international competition.

“I’m a little nervous for the local buyers if more of the Chinese come,” she said. “There were years it was very competitive.”

What’s In a Name?

The Peninsula holds more appeal for Chinese buyers than San Francisco, agents said, for reasons ranging from safety and homeless concerns to a desire for more land than they could get back home.

Coldwell Banker agent Janice Lee, a former president of the Chinese Real Estate Association of America, said some buyers’ insistence on being outside the city is baffling. She said she tried to convince a recent retiree Taiwanese buyer that there would be more “Asian amenities” like markets and cultural events in the city’s Richmond and Sunset neighborhoods, but they wouldn’t hear of it. She said she hasn’t yet seen much of an interest in investment properties downtown either.

For those Chinese buyers who are “just coming out of the woodwork” in San Francisco, she said, the neighborhood needs to have name recognition. Chinese buyers have never heard of Noe Valley, she said, even though it’s a very popular southern neighborhood for locals.

“They just hear about the northern neighborhoods,” she said.

Even within the northern neighborhoods, Pacific Heights has a hold of China’s high-net-worth individuals, agents said.

“We have a beautiful $13-million property on Russian Hill,” said Compass agent Butch Haze. “And they’re like, ‘I would buy this in a second if it was in Pacific Heights.’ I say, ‘Well then you wouldn’t have this one-of-a-kind view the way it is on this hill.’ It’s funny, they very much want the name brand.”