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Categorized | Property

Buying off-plan attracts Chinese investors

Posted on September 29, 2015

Elizabeth Stribling

Elizabeth Stribling sold half the Plaza Hotel apartments to foreigners

Tucked away at the eastern end of so-called Billionaires’ Row in Manhattan — a stretch of glittery skyscrapers that house members of the world’s elite — is number 252 East 57th Street.

It boasts curved glass sides, panoramic views of Central Park, a hydrotherapy spa and a covered driveway to offer complete privacy and discretion to celebrities and diplomats on what is also known as America’s Monopoly board.

    More than a quarter of its 93 units have been snatched up, even though the tower will not be completed for another year.

    “The Chinese like to buy off-plan,” says Elizabeth Stribling, chairman of Stribling & Associates, which is marketing the development. “It makes them feel they’re getting the best offering.”

    Ms Stribling should know: she sold the Plaza Hotel apartments in 2007, about half of which went to foreigners.

    “They see America as a safe haven,” she says. “With market turbulence right now, it’s even more of a reason to diversify their portfolios.”

    For the past decade, nomadic billionaires have poured their money into US property, particularly in Manhattan, which is seen as a liquid market that can only go up.

    Meanwhile, New Yorkers bemoan that the Chinese are collecting condos as trophies and leaving them empty, inflating prices and making housing unaffordable for locals.

    But as the US bounces back from 2008’s crippling housing crash, two things are apparent: China’s shopping spree has become both more voracious and more luxurious.

    This year, the Chinese for the first time became the biggest foreign buyers of US residential property, in terms of units, dollar volume and price paid, according to a report from the National Association of Realtors, which tracks property purchases across the country.

    In the 12 months to the end of March, Chinese buyers spent $28.6bn on residential real estate in the US, more than double that spent by Canadians, the next biggest source of foreign buying — a far cry from 2011, when the Chinese spent $7bn on US real estate, or 2000 when they spent $50m.

    And they are spending big.

    In recent years, China’s shopping habits have become more voracious and more luxurious

    The Chinese bought homes that were more than three times pricier than Americans, paying on average $831,800 per property — about 70 per cent of it paid in cash — compared with $255,600 for a US buyer.

    Amid stock market gyrations, anti-corruption campaigns and a slowing economy at home, the Chinese upper class has in the past two years been keen to park its money overseas.

    “In the 5,000 years of China’s history, never have so many Chinese quietly moved so much money out of the country at such a fast pace,” wrote RealtyTrac in a research note last month.

    “Nowhere is that . . . capital flight more prevalent than into the US residential real estate market, where billions are pouring into the American dream.”

    Stephen Shapiro, vice-president of New York capital markets at Jones Lang LaSalle, says: “They aren’t necessarily being bought for occupancy. They’re using it as a bank. If you live in China, or Russia, or Venezuela and you need to get your currency out of there . . . buying real estate in New York has proven [in] every cycle as the safest investment.”

    China underpinned New York’s re­covery because, even though local buyers pulled back, Chinese appetite for condos remained strong, with average home prices in New York exceeding 2006 peak levels. This led to a swath of new luxury developments breaking ground.

    When the 75-storey number 175 West 57th Street was completed last year, it became the tallest residential tower in New York City. A few months later, 432 Park Avenue, another super luxury skyscraper on Billionaires’ Row, became the tallest.

    Developers saw these high-flying projects and piled in, says Andy Gerringer, managing director of The Marketing Directors, a real estate marketing company.

    “It’s a herd mentality,” says Mr Gerringer. “Everybody has been chasing the super-high end.”

    But despite the doubling of land prices in the past few years, luxury has become ever more ubiquitous. With higher costs, it is harder for developers to justify new towers that do not command the highest prices.

    More than 80 per cent of new US multifamily units — or apartment towers — built in the past two years have commanded rents in the top fifth of the market, according to CoStar, a property research group.

    “The air is very thin up there,” says Mr Gerringer. “There are only so many people that can afford $20m apartments.”