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December 15, 2014

$2 billion and counting: Chinese shake up Puget Sound region's real estate market in a big way

Puget Sound Business Journal

Marc Stiles

Wealthy Chinese are sinking billions of dollars into Puget Sound area real estate, and by doing so they're making a clearcut business case for protecting the environment and spending money on education.

The influx of foreign buyers, mostly Chinese, was one of the top real estate stories of the 2014. It's not just that many foreign nationals are buying here. Rather, it's how they're executing transactions, with some paying all cash for pricey assets.

Experts predict that the trend will continue. According to the National Association of Realtors, China has more than 2 million millionaires, and that 47 percent plan to move out of the country in the next five years.

Based on a survey of National Association of Realtors' members, from April 2013 through March 2014, the total sales volume to international clients was estimated at $92.2 billion, or 35 percent higher than the previous period. In Washington state in 2013, people from China bought nearly $2 billion in residential real estate.

"As long as China is allowing Chinese people to invest outside of their country, I don't think it's going to stop," said Brian Hatcher, an executive vice president of commercial real estate services company Kidder Mathews. Tere Foster, a residential broker with Windermere in Bellevue agrees.

Chinese see real estate as a strong investment, and Seattle is quickly becoming the preferred location on the West Coast among Asian buyers, said Foster. Chinese buyers are drawn to the Puget Sound area by the quality of schools and the relatively clean air and water. That theme has been repeated over and over in Seattle this year.

Interest among Chinese buyers in commercial real estate is also increasing. Earlier this year a Chinse group paid $30 million for the First Congregational Church's property in downtown Bellevue, where early plans call for a pair of 43-story residential towers. A different group bought a nearby high-rise development site for $31 million in 2013.

Kidder Mathews was involved in both of those sales, and Hatcher said the buyers paid all cash and closed in about 60 days. That's lightning quick for transactions of this size. Sometimes domestic buyers can take 18 months or longer to close because they want to know precisely what they can build and how much it'll cost to develop.

Chinese buyers tend to have different ways of doing business, according to Hatcher, who said, "If they want a piece of property they buy it." Sellers favor these kinds of deals, and the result is that big financial institutions that traditionally buy expensive commercial real estate have had to "really speed up their time frames," Hatchersaid.

Not all Chinese buyers are in a toot, said Foster, the residential broker with Windermere. She seeing two type of home buyers from China. The first is looking to good schools, and often the mom and kids live here while the dad commutes to and from China. The other group are investors, and Foster said they generally take a lot of time to buy something.

"There are buyers who we track for years," Foster said. These investors own multiple properties in Beijing, Los Angeles and Canada and are looking for one more piece of real estate. She added they may rent the homes but not often. It's common for a Chinese investor to buy a multi-million dollar home and have it sit vacant, she said.

Windermere is one of several companies trying to capitalize on Chinese buyers.

"We recognized the need a few years ago and brought on a Mandarin-speaking associate," said Foster, who said that although the Asian buyers know English, they prefer to communicate in Mandarin.

Another mostly residential company, Realogics Sotheby's International Realty, has what it calls its Asia Desk at its Kirkland office. The desk has about 10 agents who speak Mandarin. Hatcher's commercial real estate company, Kidder Mathews, also offers a a China Services Division, with most of the team in California though two agents work out of the company's Bellevue office.

The influx of foreign buyers is shaking up the real estate industry, with broker and agents in the Puget Sound area scrambling to figure out how to tap into the market. That, by many indications, won't slow down anytime soon.

A good example of the frenzy played out in Realogics' downtown Kirkland office one October afternoon during a business meeting that was more like a pep rally. Wine flowed and 150 Realtors sat in rapt attention as real estate, banking and Chinese business experts spoke.

"Let's make money and have fun together," said one of the speakers, Angela Bi, a principal of a Shanghai and Vancouver, B.C. company called Visa Consulting Group. Her comment elicited laughter and applause among the attendees. They were there for the Greater Seattle Chapter of the Asian Real Estate Association of America's meeting that was billed as the group's first Pacific Rim Real Estate Summit.

It likely will not be the last, said broker Debbie Lin, a Mandarin-speaking broker at a Windermere office in Bellevue. She said the reason is that Chinese buyers are looking for a good environment to raise their children and a way to protect their wealth, and that Chinese real estate is very expensive, with high prices for small condos in Beijing and Shanghai. For the same money here, they can buy a more spacious home, she said.

"Feng shui is also a factor," Lin said. "The orientation of the home and layout of the interior need to be favorable or the home won't even be considered."

For the full story, go to Puget Sound Business Journal.

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