The trade war between the United States and China is already claiming casualties. Tariffs are up on both sides, and Huawei has been banned from buying components from U.S. manufacturers. China could retaliate by placing additional restrictions on its citizens when it comes to investing in U.S. real estate.
Removing Chinese money from the market could have a dramatic impact on home prices. According to the National Association of Realtors, China accounts for the largest share of foreign investment in residential U.S. real estate. From April 2017 to March 2018 alone, Chinese nationals purchased $30.4 billion worth of American property.
President Trump vs. China: Real Estate Takes a Hit
Impressive as the above figure may be, it’s actually down from previous years. Tightened credit conditions have forced some Chinese investors to remain on the sidelines or sell their U.S. properties in order to raise cash. Meanwhile, the yuan is sliding, reaching approximately 6.9 to the dollar. If it falls past 7 per dollar, it will represent the currency’s lowest value in a decade.
The Chinese government could hit back at the U.S. while simultaneously supporting its flailing currency by placing further restrictions on overseas investment. It would directly affect real estate markets around the West Coast, as well as college towns across the country. According to the NAR report, 38% of Chinese investors in U.S. real estate have purchased in California. College towns have been popular ever since Chinese parents began using rents and appreciation to recoup their kids’ tuition fees.
There Is a Silver Lining for American Buyers
A Chinese exit from U.S. markets would dent home prices, especially on the West Coast and in college towns. It would be a boon to American buyers who may be unable to afford properties at their current valuations.
In the near future, the U.S. real estate market may be a very different place than it is today. A pivot from Chinese money to domestic demand could result in more realistic appreciation. Additionally, millennials are entering the market in droves, and new technologies are coming online that simplify the property purchase process while bringing increased transparency and lower costs.
