Rich Asians crowd into US property

An overheating Asian property market and a depreciating US dollar are prompting Asian investors to seek diversification and returns in US real estate.
Rich Asians crowd into US property

The US real estate market has bounced back over the past seven years thanks in no small part to Asian interest, with China leading the way.

Chinese investors now account for 16% of US residential property purchases made by foreigners, a proportion that has tripled over the last seven years.

Scorpio Partnership data suggests that, on average, Asian individuals with wealth exceeding $100,000 are investing more than 30% of it overseas. The US attracts some 24% of their overall wealth, and in terms of assets an estimated 26% of their wealth is invested in real estate.

Ultra-high-net-worth individuals (UHNWIs) – those with wealth over $30 million – are the biggest overseas investors (see figure below). But they are investing less of their assets in the US than the mass-affluent and HNWI segments. At the same time they appear to be allocating the largest share towards real estate, almost 30% of their wealth.

The Capgemini World Wealth Report 2014 indicates that there are an estimated 4.3 million wealthy individuals originating from Asia Pacific. This group holds $14.2 trillion of investable wealth, a figure comparable with the $14.9 trillion held by North American wealthy individuals.

There appear to be three main reasons for wealthy Asians' interest in the US: diversification, return and strong laws. Due to a combination of an overheating Asian property market and a depreciating dollar, both diversification and return rationales are easily understood. Moreover, the transparent legal framework behind the US property market, whose comparative transparency appeals to Asian investors.

A report by property firm Savills from last year suggests that further motivations for Asians buying homes included residency permit possibilities as well as educating and accomodating children. Los Angeles, San Fransciso and Las Vegas are generally viewed as the primary locations for residential purchases, whereas commercial real estate buyers are said to focus mainly on 'trophy' New York assets.

With 28% of their wealth held in cash and cash equivalents, Asia Pacific's wealthy also have a tendency to pay in cash and are focused on the luxury end of the property market, targeting homes worth over $3 million.

As wealth continues to globalise, and emerging market wealth pours across borders, it seems as though by buying property, Asian investors are looking to secure that wealth for the long-term.

¬ Haymarket Media Limited. All rights reserved.