Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

Screen Shot 2014-07-09 at 12.01.36 PMAmerican citizens already have a hard enough time affording a home. Squeezed out by financial oligarchs buying tens of thousands of properties for rental income, and faced with real wages that haven’t budged since the mid-1970s, the demographic of U.S. citizens that historically dominated the new home market has been forced to live in their parents’ basements. Just to kick em’ when they’re down, Americans now face the impossible task of competing with laundered Chinese money.

Of course, this isn’t a new trend. I first covered it in January 2013 in the post: Corrupt Chinese Politicians are Buying Billions in U.S. Real Estate. This was then followed up a couple of months ago in the piece: Zillow Opens the Floodgates to Chinese Buyers in Order to Keep Housing Bubble 2.0 Inflated.

While this trend may not be new, it is certainly accelerating. According to the National Association of Realtors in its annual report on foreign home purchases, transactions from Greater China (includes Hong Kong and Taiwan) were up 72% in the past year to $22 billion. In some California communities, 90% of real estate buyers are from China. Yes, 90%. Naturally, many of them are buying multi-million dollar homes in “all cash” transactions.

Bloomberg reports that:

Henry Nunez, a real estate agent in Arcadia, California, met with so many homebuyers from China that he bought a Mandarin-English translation app for his phone.

The $1.99 purchase paid off last month, when he sold a five-bedroom home with crystal chandeliers, marble floors and two kitchens, one designed for smoky wok cooking. The buyers were a Chinese couple who paid $3.5 million in cash.

Buyers from Greater China, including people from Hong Kong and Taiwan, spent $22 billion on U.S. homes in the year through March, up 72 percent from the same period in 2013 and more than any other nationality, the National Association of Realtors said yesterday in its annual report on foreign home purchases. That’s 24 cents of every dollar spent by international homebuyers, according to the survey of 3,547 real estate agents.

Chinese buyers paid a median of $523,148 per transaction, compared with a U.S. median price of $199,575 for existing-home sales.

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.

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.

“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.”

Chinese investors are moving into development in Arcadia, Chen said. They are buying lots with homes built in the 1970s and ’80s, tearing them down and erecting sprawling houses like the one Nunez sold for $3.5 million, which has a double-height entry hall and wood-paneled library.

“Local people really cannot afford these most of the time,” Chen said.

Since when did anyone care about the interests of the average American citizen anyway?

“A Chinese national bought one of our houses at Arcadia in Irvine after reading about it on a blog,” Tri Pointe CEO Doug Bauer said in a telephone interview. “It was a Chinese blog. We couldn’t even read it.”

Some wealthy Chinese have come up with ways to evade the yearly $50,000 per-person limit on taking money out of the country so they can buy U.S. real estate, Yu said. Methods include laundering money through Macau casinos and cooking the books of import-export companies, he said.

More on this later…

“A lot of people over-invoice export proceeds, so they can park some money outside,” Ha Jiming, chief investment strategist for Goldman Sachs Group Inc.’s China investment management division, said at a Los Angeles conference in April.

“It’s just the beginning of a tidal wave,” he said in a telephone interview.

Overseas buyers are changing Arcadia, according to Nunez, 55, who has lived in the city since he was 6 years old.

“You drive every street and there are three or four new houses being built,” he said. “It’s just incredible, the demand.”

It appears the only people not buying American real estate are Americans needing a place to live.

So what is the fuel behind this demand? As suspected, it appears much of it comes from Chinese laundering dirty money. They are scrambling to get it out of the country before the authorities crack down on the source of these funds. It appears The Bank of China is playing a central role in this money laundering, which may be angering Chinese authorities. We learn from Bloomberg that:

Bank of China Ltd. denied a report by the state broadcaster alleging it broke the nation’s foreign-exchange rules by providing services that help clients move “dirty money” abroad.

Reports by China Central Television and other media “contain discrepancies with and misunderstanding of the facts,” the Beijing-based lender said in a statement on its website late yesterday. “References to an ‘underground bank’ and ‘money laundering’ are inconsistent with the facts.”

CCTV said Bank of China Ltd. was among lenders that circumvented the foreign-exchange regulations. Customers at the country’s fourth-largest lender by market value can convert unlimited amounts of yuan into other currencies through a product called “Youhuitong,” CCTV said in the 20-minute broadcast yesterday, which included interviews with several unidentified employees of the bank.

“Bank of China introduced a cross-border yuan transfer service in 2011 that only allows money to be moved for immigration and overseas property investment purposes,” the lender said. The company has strict and robust operational procedures for its cross-border yuan transfer business, it said.

Youhuitong targets customers who wish to invest in or migrate to North America, Australia and some European countries, CCTV said, referring to documents shown by unidentified Bank of China employees.

Now just imagine what will happen to the U.S. real estate market in these areas when Chinese authorities decide to turn off the spigot…

In Liberty,
Michael Krieger

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9 Comments

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  1. There are more and more indications that the Federal Reserve fully intends to follow through with its program of tapering bond and MBS purchases and then, slowly, to increase interest rates…. ironically, this story is one of them …The Chinese were screwed during the 2000’s by buying US Treasury notes, and then the Fed caused their value to plummet …now that they have bought real estate in a big way, the Fed will crash real estate prices (again!)….

    It is so easy to see this stuff coming …how come everyone is always so surprised when it happens?

  2. “how come everyone is always so surprised when it happens?”

    Not everyone is ‘so’ surprised, a large fraction weren’t and won’t be surprised at all, and many have been working against it directly for decades!

    What you probably meant to ask was:

    1) How come everyone I know is always so surprised?

    A: because you know mostly apathetic ignoramuses.

    2) How come people invest anyway, knowing it’s fraudulent?

    A1: for the same reason teenagers still play ‘chicken.’

    A2: it’s approximately the only game in town.

  3. A tad too much of pot calling the kettle black, me thinks…

    Hard to feel sad for Americans who gladly continue their Credit Card Lifestyle – BECAUSE Chinese (and Russians) supported us – with no regard as to where the money was coming from, or how we would ever pay it back.

    But as the plunge continues, and the Chinese (how dare they!) actually WANT something for their trillions-investment, they’re “kicking us” when we’re down?

    No. They’re ridding themselves of a nation’s paper that a government, VOTED FOR AND ALLOWED TO RUN AMOK, by the people, have destroyed.

    If Americans GAVE A SHIT about the Real World, what was going on around them, the manipulation of nearly everything by Central Banks, we wouldn’t be here, but self-absorption, voting for people like Bush, Obama, Clintons, and STILL thinking the Federal Reserve is ‘federal’, well……………..

    Finally, we illegally invade Afghanistan with on phony pretenses, and heroin exports increase 1000%, with our military (I know this as FACT) protecting the opium crops from ‘terrorists’, and virtually EVERY bank controlled by the IMF/Rothschild banking cabal laundering profits?

    Puuuleeaaasssse…….. I just looooove how ‘innocent and good’ America always pretends to be.

    • Michael Krieger

      Have you even ever read this blog? It is all about criticizing the U.S. and its corrupt policies. My point is we don’t need to add dirty Chinese money to dirty American money to price out the population and more rapidly turn everyone into total peasants, while oligarchs own every piece of real estate.

      Best,
      Michael Krieger

    • “Hard to feel sad for Americans who gladly continue their Credit Card Lifestyle”

      But the resulting implosion ALSO affects the Americans who didn’t make those poor choices, which therefore means you should go fuq yourself for being an idiot who overgeneralizes then shares his ‘insights’ as if they have merit.

      ” … a government, VOTED FOR AND ALLOWED TO RUN AMOK, by the people…”

      Nobody elected the IRS. Nobody elected the Fed. Nobody elected the regulatory agencies…

      Would you like to revise your statement, or slink off in shame because you’re incorrigibly ignorant and too gutless to do something about it?

    • “Slink off in shame”?

      Like a typical, uninformed American? AS STATED: Most Americans think the Federal Reserve is actually ‘federal’, believe paying taxes on personal income is legal….As an international business traveler, I’d say Americans are the easiest to dupe, and certainly the most gullible.

      AND WHO CONTINUE TO VOTE FOR THE SAME, CORRUPT POLITICIANS WHO SUPPORT THESE CRIMINAL, UNCONSTITUTIONAL PROFIT CENTERS.

      People who voted for Romney, thinking “he’s different’???

      It’s amazing that after decades of being so outrageously lied to by the most corrupt, amoral people on the planet, everyone lines up to cheer on “our guy – cuz’ he’ll be different!”

      Sorry to ruffle your feathers, but America is getting EXACTLY WHAT IT DESERVES; A corrupt, fascist, Police State, enabled by illegal ‘Patriot’ Acts and the NDAA, and enforced by an unconstitutional army called the DHS. For the ‘war on terror’ …Except NOW it’s being used against The People.

      All because everyone desperately clings to the lie of 9/11 and “Islamic terrorists”.

      As my father used to say;

      ”Stupidity is it’s own reward”

      But my favorite?

      “No one ever went broke underestimating the intelligence of the American people” ~ H.L.Mencken

      It’s hard to feel sad for a nation with a collective, room-temp IQ, leaving VERY few who “didn’t make those poor choices”. Few wanted to face the fact that the ‘American Dream and Lifestyle’ has been an illusion for the last 20 years or so, propped up NOT BY REAL ECONOMICS – but by Get Rich Quick schemes and bubbles.

    • Why didn’t you reply to what I said?

      Answer; because you know you were wrong.

      Why would you share yet MORE of your prejudice, instead of addressing the OVERSIGHT by which anyone can see that your judgments are worthless?

      If you want a different evaluation, you must try doing something different.

      (Hint; if you stereotype instead of responding to the person actually talking to you, you’ll not only be making yourself stupid, you’ll also look it.)

    • “everyone lines up”

      I can’t encourage you enough to stick with TRUE statements if you don’t want to keep proving what a colossal ignoramus YOU are.

    • “everyone desperately clings”

      So you’re the type who ‘reasons’ by putting people in a pigeon hole, and then arguing with the hole.

      Way to prove by your revealed cowardice (yes, you did slink away, because you evaded the _honest_ disagreement) that YOU think YOUR argument sucks.

      I will henceforth give your notions the same level of respect that you’ve given them, and by doing the same thing you’ve done; avoid talking about them because even their creator knows they can’t be defended.

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