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How Chinese Home Buyers Are Boosting Housing Prices Around the World

The average price of a home in Vancouver has shot up 13 percent over the last year and now tops $780,000. Even as home prices fall in most major U.S. cities, housing in tony San Marino, Calif., has shrugged off the financial crisis to reach a record high last year. Demand for real estate in Melbourne and other Australian coastal cities is up.

The link? Well-heeled Chinese home buyers are increasingly shopping abroad, pushing up prices in real estate markets around the world. Evidence of the trend:

One factor driving Chinese home buyers to think globally -- rising real estate costs at home. The average house in Beijing runs $300 per square foot, or roughly what you might pay in many Western cities. Interest rates also are rising in China, as the government tries to cool the racing economy. Measures aimed at discouraging speculation, such as a restriction barring people from owning more than two properties, is also spurring real estate investors to consider foreign markets.

San Marino: Recession-proof
Vancouver's natural splendor, good schools and large Asian-speaking community are a particular draw for wealthy Chinese. That has helped make the city the hottest real estate market in Canada, even as home resales around the country remain generally flat. Prices for an ordinary two-story house in the city are up 10 percent this year, to $1.1 million.

In Southern California's San Gabriel Valley, meanwhile, small, upwardly mobile San Marino is the only affluent community in the region where housing prices haven't fallen. That owes partly to Chinese investors and home buyers, local real estate agents say:

"If you go to mainland China and someone asks, 'Where do you live?,' San Marino represents that you are wealthy," said YanYan Zhang, a real estate agent whose clients include overseas buyers looking for homes here.
The surge in Chinese customers hasn't been lost on realtors. For instance, Los Angeles-based CB Richard Ellis (CBG) offers services specifically geared to helping Asian buyers shop for homes abroad. Agents in China are also setting up tours of foreign cities for Chinese investors keen to scout overseas real estate.

Take note, Federal Reserve
China's global real estate binge obviously makes for a stark contrast to the plunging prices and tide of foreclosures here in the U.S. And some observers will interpret it as yet one more indication that China is set to surpass the U.S. as the world's leading economic power, as the International Monetary Fund predicted this week.

But perhaps even more striking than this economic reversal of fortune is how much more aggressive Chinese financial authorities have been in trying to puncture their housing bubble than the Federal Reserve was in the years leading up to the financial crisis.

Beijing vs. the housing bubble
China has the benefit of witnessing the carnage in the U.S., of course. But there's no questioning how aggressively Beijing has moved to rein in its galloping real estate market, where prices have risen upwards of 50 percent since 2009. Its central bank has raised interest rates four times since last fall, while in January the required down payment on second homes was increased to 60 percent. Some cities also are raising property taxes. Meanwhile, China is taking precautions for when the bubble pops, including repeatedly lifting banks' reserve requirements in recent months.

Despite these measures, there's no guarantee that China's landing will be a soft one. Some market analysts foresee an increase in bad loans, and the credit rating agency Fitch puts the odds of a full-blown banking crisis in China at better than 50-50. The kind of political unrest sweeping the Middle East also could flare in the People's Republic, where economic empowerment may eventually prove incompatible with dictatorship.

As a result, it's uncertain how long the real estate booms in Vancouver, San Marino and other cities fueled by the influx of Chinese buyers will last. Inflation these days -- and financial bubbles -- travel as comfortably from East to West as in the other direction. As China will learn, home prices don't always go up.


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