In the past three weeks, the Chinese stock market has taken a hit. With its stock market plunging 30% in less than a month’s time, this economic turmoil could have significant impact in not just China, but also of that in the U.S. and its housing market. American cities have seen a splurge of investment in real estate from the Chinese, particularly on the west coast in cities like Los Angeles, San Diego, and San Jose in the past 10 years. However, this has been largely due to the booming Chinese economy. Now that the Chinese market has crashed, it is likely that the spurt of growth in U.S. real estate will slow down. Furthermore, RIS Media reports that there could be a subprime lending crisis in China. If Chinese stock investors were borrowing money, presumably for the refinancing of their homes, this money might not be paid back for a long time.
John Wong, a managing broker in San Francisco, has a client basis of 65% Chinese buyers. How the Chinese market will react to this increased volatility in its stock market will be the ultimate question. Wong reports that it’s possible that Chinese borrowers could actually increase their investment in U.S. markets. If the Chinese are worried about holding their money in China, this may cause them to look elsewhere to invest, particularly in the U.S. housing market. Furthermore, Wong states that many Chinese clients purchase homes in the U.S. because they prefer the school systems in America, as well as the stability of the country, particularly in the real estate market.
While the consumer confidence Chinese buyers have in the U.S. remains a good thing, brokers should make sure their Chinese clients have sound financial statements, and receive a proof of funds as soon as possible when assisting them. With the Chinese market subject to change at any moment, it will interesting to watch how this affects the U.S. market.