Is China the future of real estate in California? A recent report in the International Property Journal anticipates a future surge in Chinese buyers. In Southern California, the report notes, Chinese language listings have already replaced Spanish as the most searched foreign language listings, and Chinese buyers made up 7.5% of international buyers in the United States in 2007. The reason for the anticipated rise? An increase in the value of China’s currency, and a rise in the number of wealthy Chinese citizens, coupled with a drop in home values in the US, makes good deals ever more available and tempting for international buyers.

first tuesday take: Brokers who want to court buyers from foreign markets would do best to find the foreign currencies that have gained the most value against the US dollar in the recent past. China’s treasury policies have deliberately kept the value of the Yuan Renminbi (RMB) artificially depressed, and it has gained literally nothing on the US dollar in years. On the other hand, Brazilian, Canadian, Europeans and many other international buyers have  seen an increase in the value of their money, in that their currencies are now able to buy more US dollars than in the recent past. Brazil’s Real, for instance, has gone from four reais to the dollar to less than two to the dollar since 2002. With an appreciated foreign currency comes greater purchasing power for acquiring property in the United States than that of Americans holding US dollar. Thus, for those individuals holding Euros or any other strong currency, property in the USA is cheaper than comparable property in any other country with a strong currency.

For a foreigner using a strong currency to purchase real estate in California, the current Great Recession offers a double profit advantage that an American holding US dollars does not have. The Great Recession in the USA has further decreased the value of property in states like California. When a US dollar denominated property – such as California real estate – is acquired when its value is depressed, as is now being experienced in this recession, the buyer, whether an American using dollars he holds or a foreigner using dollars he has purchased, will take the same amount of profit on those dollars when they resell that property.

Now factor in the strengthening of the dollar in the foreign exchange markets, which will occur over the next several years as the US economy recovers from this recession (as appears to be happening as we write). On the resale of California property in a few years, the foreigner will convert his dollars from the sale (and pay the same profit taxes as an American) to the foreign currency he used to buy US dollars for the purchase of California real estate. The foreigner will then take an additional profit – the double profit advantage – on converting his then strong dollars into his weakened foreign currency. On the return of his US dollars to his foreign currency, after the adventure in California real estate, he will have profited both on the sale of the real estate and the sale of the US dollars. This would have been impossible if he had invested within his own country.

With a little research into currency exchange market activity, California brokers with contacts in countries with strong currencies compared to the US dollar can present their listings to foreign buyers as investments which will increase in value over the next several years in terms of their US dollar value. Then, as brokers should advise, foreign buyers may have the opportunity to take a further profit at the time of the eventual resale after the US dollar appreciates in the currency markets during the nation’s economic recovery. Curious and well-connected brokers and agents will reap the rewards.

Re: “China on the move” from The International Property Journal