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> A lot of the buyers right now, particularly the all-cash-over-asking buyers running up prices, are not necessarily the newly minted tech millionaires. Yes, i
by 7Figures2Commas 12y ago
> A lot of the buyers right now, particularly the all-cash-over-asking buyers running up prices, are not necessarily the newly minted tech millionaires.
Yes, it's funny that so much of the mainstream discussion around housing in the Bay Area focuses on the wealth created in the tech industry when much of the eye-popping housing activity has actually been driven by foreign buyers.
When it comes to the prices these buyers are willing to pay, it's incredibly important to understand their motivations. Many of these foreign buyers are not buying houses in the United States as "investments" in the traditional sense. Instead, they are using houses as stores of wealth because they are acutely aware that their capital/assets are at risk in their home countries. In other words, a house in San Francisco may be more secure than a bank vault in, say, China, as far as wealth preservation is concerned.
American buyers competing for assets that have appreciated rapidly in value in recent years due to foreign demand, and who may be far more sensitive to the potential for gain or loss, should at least understand this.
- w1ntermute 12y ago> In other words, a house in San Francisco may be more secure than a bank vault in, say, China, as far as wealth preservation is concerned. But wouldn't a bank vault in America be an even better choice than a house in SF? Why aren't these wealthy Chinese people making more liquid investments once they've moved their money abroad?
- dkasper 12y agoLike the grandparent poster said, it mostly has to do with culture. It's a common thing to buy housing as a place to put money in China, which is why there are whole ghost cities that no one lives in and places where the home ownership rate is 200%, ie on average each person own two homes. They also view buying abroad in places like the US as a safe place to store wealth. http://www.forbes.com/sites/erincarlyle/2013/12/20/ken-deleon-top-silicon-valley-sales-agent-why-chinese-buyers-love-palo-alto/ http://www.forbes.com/sites/erincarlyle/2013/12/20/ken-deleo... http://www.forbes.com/sites/realspin/2013/10/28/in-china-theres-not-one-city-sans-terrifying-stretches-of-empty-houses/ http://www.forbes.com/sites/realspin/2013/10/28/in-china-the...
- 7Figures2Commas 12y agoThere are a lot of factors. I'll point out two: 1. Negative real interest rates. 2. It's easier to protect your identity/privacy. Notably, real estate agents and title insurers are exempt from having to file Suspicious Activity Reports with the Treasury Department.
- refurb 12y agoI'm not sure about #2. When you buy a home the information on the title is public knowledge. Sure, you could create a holding corporation, but the officers of a company are also public information. Also, real estate agents and title insurers don't handle cash at all. If you buy a house from me in cash, I'll kindly ask you to deposit it and send me a check. When the buyer goes to a bank with cash or other suspicious sources of money, the banks will fill out a SAR.
- architgupta 12y agoA few reasons: Houses are perceived as good stores of values as prices in the Bay Area generally trend upwards. There is more trust in a house vs the stock market (or the investor has a diversified position and real estate is part of that diversification). Cash sitting in a bank is getting devalued with inflation. Real estate can also generate rent if you don't reside there. Another angle, the house may be owned in another person's name, then the illiquidity is an advantage. The other person who you trust, may still be tempted to use tiny bits of large chunk of cash if its sitting in a bank account. Meanwhile selling a house is a pretty big deal. The reason for not keeping the house in your name are possibly related to avoid the local government's oversight into your assets, etc.