Chinese investors in the U.S. real estate market are reportedly picking up high-end condos and residences in college towns like Manhattan and Boston for their children, many of whom are still in diapers.
Buyers believe their investments could not only benefit their property portfolio but also secure their children's future. When the child grows up and decides to attend a university in the United States, the home can help him or her save on boarding costs. Also, while the child is growing up, the buyer can rent it out and reap a good return on the investment.
What's more, many hope to fund their children's college tuition from the saved up rents, The Wall Street Journal reports. The purchases are not just restricted to one asset, either. Chinese parents are reportedly picking up more than one property so that the income will keep flowing even after the child has occupied one apartment.
"Family and financial planning all mix into one. Where we have a one-year or three-year plan, they generally have a 20-year plan," Kevin Brown, a real-estate broker in New York, told the Journal.
Buyers acknowledge the inherent risk in planning so far down the road, reasoning that even if their child decides to stay in China for school, U.S. real estate could still represent a steady flow of income.
"Even if their kids don't end up coming here, they're more likely to make a profit on renting or resale," William Montero, an agent at Gibson Sotheby's International Realty in Boston, told the publication.
Indeed, Chinese investment in the American property sector is multiplying at a fast rate. A report by the National Association of Realtors revealed that China spent about $8.2 billion in 2012 on U.S. real estate, generating about $492 million in commissions for real estate agents. In 2013, the country's investment doubled to $14 billion, reports Businessweek. A CBRE report predicted that, in the coming years, China may end up spending more than $178 billion on properties abroad.
The accelerating pace of Chinese investments in the country is alarming some experts. According to Michael Snyder, author of the book "The Beginning of the End," large chunks of land in small communities are being devoured by Chinese investors.
"So what happens when we get to the point when the Chinese government and/or Chinese citizens own 10 percent of all the real estate in the entire country? Will it be a problem then? What about if we get to 20 percent or 30 percent? At what point will we be forced to admit that we have a major problem on our hands?" Snyder asks.
Meanwhile, China's heated asset bubble is on the verge of a collapse, with property prices having soared to unsustainable levels, according to Forbes, which warns that a market crash could have an adverse effect on the broader economy.
Strict property regulations and political embroilment in the country has also driven the Chinese to invest in the United States, where property prices are attractive.
"There is no doubt that the political situation back home is having an impact on how China's rich are thinking of preserving their wealth," Pamela Liebman, chief executive of The Corcoran Group, told the Financial Times.
