Laundering money through casinos to buy US property

Some wealthy Chinese have come up with ways to evade the yearly USD50,000 per-person limit on taking money out of the country so they can buy U.S. real estate. Methods include laundering money through Macau casinos and cooking the books of import-export companies.
Chinese purchases of U.S. homes are likely to continue increasing as the country’s swelling ranks of affluent consumers seek refuge from pollution and political and economic uncertainty, according to Thilo Hanemann, who tracks cross- border investment for the New York-based Rhodium Group.
“A lot of people are trying to hedge against a generally bearish outlook for the Chinese economy,” Hanemann said in a telephone interview. “Buying real estate overseas has been in the past limited to a relatively small group of wealthy individuals and sometimes government officials. But it’s become a much bigger trend, involving affluent middle-class people.”
Chinese buyers paid a median of USD523,148 per transaction, compared with a U.S. median price of $199,575 for existing-home sales. While Canadians bought more houses than the Chinese, they spent less – a median of $212,500 per residence, for a total of $13.8 billion.
Publicly traded builders are responding by catering to Chinese buyers in areas with high demand. Brookfield Residential Properties Inc. staged feng shui blessing ceremonies before beginning work on projects in Anaheim and Foothill Ranch communities in Orange County, south of Los Angeles. The New Home Co. consulted with a feng shui master on the land plan for its Orchard Park development in San Jose, California, that opened in April.
California is the most popular U.S. destination for Chinese real estate buyers, according to Juwai.com, a Hong Kong-based property search engine. Chinese bought 32 percent of homes sold to foreign buyers in the state, double the share sold to Canadians, according to an April survey by the California Association of Realtors. About 70 percent of international buyers pay cash, the survey showed.
“The uncertainties in China’s domestic market are contributing to a higher rate of growth in Chinese interest in U.S. property,” Andrew Taylor, co-chief executive officer of Juwai.com, said in an e-mail. “That interest began accelerating in the second quarter of 2014, in part because of China’s property slowdown.”
New-home prices in China fell in June for a second straight month as a slowing economy and excess supply deterred buyers, according to the China Real Estate Index System Survey. In Hong Kong, new-home prices have dropped by 15 percent to 20 percent since October, according to a JPMorgan Chase & Co report last month.
U.S. house prices have climbed 26 percent since March 2012, after falling 35 percent from their June 2006 peak, the S&P Case-Shiller Index of 20 cities shows.
Buyers from China are driving up prices and fueling new construction in Southern California areas such as Arcadia, a city of about 57,500 people with top-rated schools, a large Chinese immigrant community and an array of Chinese restaurants and markets.
The median home price in Arcadia’s 91006 ZIP code was $1.28 million in May, up 18.5 percent from a year earlier, according to research firm DataQuick.
“About 90 percent of my buyers are from China,” said Peggy Fong Chen, a broker with Re/Max Holdings Inc., who sold 80 homes in Arcadia last year. “They want new construction. They want two levels. In China, it is considered a mansion if it has two levels.”
More than three out of four buyers pay cash, said Chen, a native of Hong Kong who’s been selling real estate for 10 years. At least 20 percent are absentee owners who don’t have long-term visas yet. Many purchase houses for their children to attend high school or college, she said.
Even as prices climb, U.S. real estate remains a relative bargain for Chinese investors, according to William Yu, an economist at the University of California at Los Angeles’s Anderson School of Management.
Two-bedroom condominiums in Shanghai’s Pudong district cost about $1 million, almost twice as much per square foot as condos in West Los Angeles, according a report by Yu last month. The Pudong units command $1,400 a month in rent compared with $3,300 in Los Angeles.
“From an investor’s point of view, it’s better to be a landlord in L.A. than Shanghai,” Yu said in a telephone interview. “If you compare the rent-to-income ratio, it’s much better in Los Angeles than Shanghai.” MDT/Bloomberg