California is attracting Chinese buyers.

The Lawhead Team recently came across an interesting article from the San Diego Daily Transcript about Chinese buyers being attracted to homes in California. Here is what it said:

Chinese investors seek California homes.

By DEAN CALBREATH, The Daily Transcript — Thursday, June 19, 2014

With China’s real estate bubble showing signs of bursting, a growing number of wealthy Chinese are targeting California as a place to buy homes and businesses, according to a report released Thursday by the UCLA Anderson Forecast.

Last year, Chinese individuals and enterprises invested $12.5 billion in the United States, including $2.2 billion in real estate, with California being the “preferred investment location,” wrote William Yu, a Taiwan-born economist at UCLA.

“We have seen many smart Chinese investors bring in cash to buy properties in Los Angeles over the past two years…,” Yu said. “For Chinese investors, West Coast cities (including) Los Angeles, San Francisco and Seattle are ideal locations because of their geographic advantage, for example, direct flights, mild weather and large Asian communities.”

Yu’s charts also suggested that San Diego could be an attractive target because of its relatively low multifamily housing vacancy rates, which “might predict higher growth for rents in the future.”

ChineseThe reason for the recent influx of Chinese investments — which totaled just $3.5 billion two years ago, including $900 million in real estate — is that China currently has a real estate bubble that rivals Japan in 1990 and the U.S. in 2007.

Its ratio between home prices and income levels is three times wider than in the U.S., resulting in growing vacancy rates.

Because of Chinese prices are still at bubble levels, it’s far cheaper to buy property in California than in a Chinese urban center such as Shanghai. And because California has a higher median income than Chinese cities, it’s easier to charge high rents on the property.

As an example, Yu cited a 1,248-square-foot condominium that sold for $995,184 in Shanghai in March, or $797 per square foot. Yet a 2,116-square-foot condominium sold in Los Angeles for $800,000, or $392 per square foot. In other words, the L.A. flat was 41 percent bigger but 19 percent cheaper.

Because Los Angeles has a higher median income, it would be possible for the buyer of the condominium to rent it out at $3,000 per month, more than twice as high as the $1,400 monthly rent it would bring in China.

Click here to read the rest of the article from the San Diego Daily Transcript “Chinese investors seek California homes.”