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Could a Trade War with China Impact Phoenix Valley Real Estate?

04-10-2018About MortgagesEddie Knoell

Investment markets have been rocked by threats of an impending trade war with China, sending the Dow and Nasdaq indexes down sharply last week. But is there a connection to the real estate market here in the Phoenix Valley?

Consider these facts:

  • Arizona attracted more than half a billion dollars in foreign real estate investment in 2016.

  • Phoenix is the 2nd most popular market nationwide for cross-border real estate investment.

  • China has overtaken the U.S. as the largest cross-border real estate investor, and is the largest source of foreign buyers investing in U.S. real estate.

Figures aren’t available on exactly how many Chinese investors have bought real estate in the Phoenix Valley, but Chinese investment has been seen as a driver of real estate appreciation in popular markets such as Seattle, Vancouver and Phoenix since 2010.

What attracts Chinese investors to Phoenix and other urban U.S. markets?

Actually, there are several factors that may be drawing in foreign investors. Chinese investors as a general rule are looking for safe havens to invest their cash savings. They want tangible assets that are safe from the volatility of stock-based investment. Real estate fits both of these bills.

Another factor is that certain real estate investments – such as industrial or commercial properties – can qualify investors for the EB-5 investment visa – a visa type that can help smooth the road to immigration. With recent debates around immigration, one might suppose the EB-5 program could be endangered, but it w renewed as recently renewed through September of 2018.

Even for Chinese who do not wish to emigrate, foreign real estate is popular for other reasons: as a home base for children who may want to study abroad, for rental income and appreciation, and more. Relevant to us here in Phoenix, the idea of a sunny retirement is one that is catching on in China as well.

Tariff Talk

In March, President Trump signed a memo that would impose tariffs of up to 25% on $60 billion dollars worth of U.S.-bound Chinese exports. China retaliated with tariffs valued at around $3 billion on certain US products. This may sound like a lot of money on both sides, but in terms of total trade between the two countries, it’s actually a small percentage.

What might the tariffs mean for real estate investment? Likely, not much. According to government estimates, China exports more than $482 billion in goods to the U.S., meaning that the tariffs apply to less than 12 percent of goods exported here. On the flip side, the U.S. exports nearly than $170 billion to China – meaning that the retaliatory tariffs would apply to less than 2 percent of U.S. exports to China. That’s not likely to have a major economic impact on either country, except in certain targeted industries like steel and aerospace.

What about real estate?

According to CBRE, real estate investment between the two nations is unlikely to be impacted by the possibility of a trade war. The “Golden Visa,” or EB-5 investment visa, is still in place and has been renewed for 2018. It’s also notable that the Kushner company was observed soliciting Chinese real estate investors at a recent industry trade event in Beijing. It’s unlikely that President Trump – savvy to the ins and outs of the real estate investment market – will act in a way counter to those business interests.

However, it’s also worthwhile to note that as prices for real estate have risen along the West Coast, here in Arizona and other urban markets, Chinese investors have already begun seeking less expensive markets for their real estate dollars. And the EB-5 program has proven to be so popular with Chinese and other foreign investors that many of them have begun looking to other real estate markets – such as Asia and Europe – as havens for their investment dollars.

So, all in all, what does this trade war mean for us here in the Phoenix Valley? In most cases, residential real estate is unlikely to be affected. There may be some small effect on the economy overall, but the tariff program is not likely to affect our local real estate market outside of those general economic effects. As always – If you have questions about mortgages, please contact the team here at Mortgage Brothers.