It's a myth that foreign cash buyers are smart money that purchases bargains. FCBs are generally dumb money that overpays for declining assets.
Irvine Home Address … 170 ALMADOR Irvine, CA 92614
Resale Home Price …… $399,000
I've been looking for a reject
And you ain't had nothing like me yet
Don't you think it's time for motion
I can take what you've been pushin'
Soundgarden — Big Dumb Sex
Are foreign cash buyers savvy investors who are taking advantage of low prices to snap up bargains, or are they the fools who purchase overprices assets that natives won't touch? Often its a little of both. I always enjoy reading Rich Toscano's writing, and back in 2006, he wrote a brief post on what generally happens when foreign investment becomes prevalent in a market.
The Dumb Money
RICH TOSCANO — December 20, 2006
One argument I hear a lot is that foreign demand for local real estate has grown substantially in recent years, and that such foreign demand will be supportive of prices in the future.
Unfortunately, this argument puts the cart squarely in front of the horse. Investors from other countries are well known to be the very last participants to arrive at the scene of a financial bubble. They are the last to hear about all the riches to be made, the last to buy in, and the last to realize that the party is over.
The chart to the right provides an example from the history of bubbles past. The blue line represents the price of the Nasdaq Composite Index during its late-1990s flight to the heavens, along with the very beginning of its eventual journey back to earth. The red line denotes the dollar amount of U.S. stock purchases made by foreign investors.
It can easily be seen that foreign buyers chased the U.S. tech stock bubble all the way to the tippy top, and that they lagged prices the entire way. The final onslaught of foreign cash did not even hit our shores until after the Nasdaq had begun to decline from its final peak.
Far from being a positive fundamental, a sudden excess of foreign participation in an asset market is indicative of ill-informed speculative money at work. When the foreigners really start piling on, it's always a good sign that the end of the bubble is nigh.
As a rule, foreign investment comes from those with the least understanding of the market. Most often these investors are merely chasing the latest short-term rally in hopes it will continue. Sometimes they hit big paydays, but most often they end up overpaying for assets that take years to recover in price. Today's featured article is a mixed bag; some investors are getting great deals while some are not.
Foreign buyers see big opportunity in housing bust
By MICHELLE CONLIN (AP) – October 4, 2010
The Viceroy, a swanky condominium complex in downtown Miami, gives the impression that the United States is in another real estate boom. The sales office is strangely exuberant. Buyers gush about the glam condos — designed by hipster tastemaker Kelly Wearstler — and their hotel-like amenities: poolside libations, daily housekeeping and room service food stirred up by a celebrity chef.
Since January, 262 of the Viceroy's 372 units have sold. But there's a twist: Almost 90 percent of the buyers are foreigners. And they all paid cash.
The Viceroy's story is playing out across Miami. Individual investors from as far as Argentina, Canada, Colombia, France, Israel, Italy, Norway and Venezuela are swarming the city's sales offices to get in on what they see as one of the greatest real estate fire sales in the history of the United States.
At one time, these people would have invested in the U.S. stock market.
See Rich Toscono's graph above to see how well that usually turns out.
Now they see the opportunity of a lifetime in the nation's debilitated housing market. The idea is to rent out the properties and then sell them once the economy turns around.
As a general strategy, that idea isn't bad, but it all depends on the cashflow. Anyone who is buying cashflow negative properties and plans to wait for a rally is a fool. Those who buy cashflow positive properties with plans on waiting for a rally are not fools, but they may not be successful either. Those who buy cashflow positive properties purely for the cashflow may have an option to sell later if the price bubbles again, but they don't need that for the investment to be successful. True cashflow investors have a win-win because whether they keep the property for long-term cashflow or sell it for a huge gain, they win either way. Being cashflow positive is everything.
The math is seductive: Prices at the Viceroy are roughly 52 percent off the 2007 peak. Units once sold for as much $670 a square foot. Today the average price is $319.
That isn't seductive, that is stupid. That's like saying the $10 tee shirt you see in a clothing store that is marked down to $50 from $100 is a good bargain. The bubble price was never justified, and just because that price is cut in half doesn't make the price any better. Cashflow value is the only stable measure of value of any investment, but it is particularly useful for real estate.
"I have never seen such a high concentration of foreign nationals acquiring real estate," says Peter Zalewski, who has been in real estate for 15 years and founded Condo Vultures, a consulting and brokerage firm. "Eighty percent of the sales in downtown Miami are foreign-based. This is unprecedented."
If it can happen in Miami, it can happen in Irvine, right? ~~ giggles to self ~~
Miami is hardly the only hot spot for buyers from outside the United States. Real estate brokers say they've seen a surge in Washington, New York, Las Vegas, Los Angeles and San Francisco. In Seattle, Asians are buying property sight unseen, says Joe Brazen of Brazen Sotheby's International. In New York, 25 percent of buyers at the Armani-designed 20 Pine building, near the World Trade Center site, are from overseas.
"It's a positive in a sea of negatives," says Jonathan Miller, chief executive of Miller Samuel, a real estate consulting firm in New York.
This year in Phoenix, for the first time, there have been more buyers from Canada than from California, according to real estate data outfit Information Market. With the Canadian dollar approaching parity with its U.S. counterpart, the opportunity was simply irresistible to Jim Chuong, a 38-year-old Novartis sales manager from Toronto.
Chuong, whose house in Canada is already paid off, used to invest in U.S. stocks. Now he's investing in Phoenix condos, paying $50 a square foot for units that would cost $500 a square foot in Toronto.
"It's ridiculous is what it is," Chuong says.
This part of the story is true. I was recently contacted by a Canadian investment company that is flipping properties in Las Vegas. They are also active in Phoenix and other markets.
For foreigners with cash, the deals can make them money from day one. Chuong buys two-bedroom condos for less than $40,000 in low-crime areas. He only picks up units that already have renters. After paying association fees and taxes, he walks away with $300 a month, pre-tax, on each. The deals are now easy to do, thanks to the cottage industry of companies that has grown up to manage virtually everything for foreign buyers, down to badgering renters for the monthly check.
Investments like these will be the home runs of the housing bubble. With the positive cashflow those properties are giving off relative to their price, the investors can hold them forever.
For the international investor class, the United States' bloated inventory of homes, high unemployment and weak currency make for an unusually attractive buyer's market.
"Never before have all these things come together like this," says Patrick O'Neill, chief executive officer of the Hong Kong-based O'Neill Group, which helps Chinese invest in international real estate. O'Neill says Chinese buying in places like New York is on track to double this year.
"Unless you want to go to Baghdad," O'Neill says, "the United States is the best you can get."
Are there good cashflow properties in Baghdad? I wonder if this guy likes Detroit?
The trend is showing up in the statistics. In a National Association of Realtors report released in July, 28 percent of brokers reported they had worked with at least one international client, up from 23 percent a year earlier. Among those, 18 percent had completed at least one sale, compared with 12 percent in the 2009 report.
"I was going invest in the stock market, but I decided to invest in real estate instead," says Diego Garcia, a Mexico City native on assignment in New York City with Pfizer Inc., where he is a regional finance director. Garcia paid $850,000 for a Manhattan one-bedroom in a gleaming new high-rise that he plans to live in for now. "I'm a conservative guy," Garcia says, "and this was more conservative."
That is an investment that may turn to crap like the North Korea towers. Buying on speculation without regard to the underlying cashflow is a fool's game.
That's not to say there aren't steep risks. An economic jolt could easily throw the whole plan into disarray. The housing market is far from a recovery. In many places, prices continue to fall. What happens if currency values reverse and a foreign owner needs a quick sale? Or a renter bolts in the middle of the night, leaving an empty unit and no cash flow?
It's not as if foreign buying can be counted on for a housing market turnaround. Overseas buyers represent a mere 7 percent or so of today's total.
That that number sink in, folks. This is not an invasion. Foreign buyers represent a small fraction of the buyer pool. In places like Las Vegas that will see a 50% or more turnover of its housing stock, a few additional sales to foreign buyers won't support the market.
Yet in some cities, such as Miami and Washington, the foreign sales are helping to stabilize the markets.
In past downturns, buying a property in the U.S. was the prestigious purview of the wealthy, but today the market is within reach of the swelling ranks of the global upper-middle class.
Colombians, who often call Miami the most beautiful city in their country, have always been drawn to Florida. The difference now is the upside-down economics. It is cheaper to buy in Miami than in Bogota, and you can fly between the two cities for $59 each way.
Interesting that the substitution effect can reach across thousands of miles. I wonder what it means to Irvine prices to be seven times higher than Las Vegas prices. It's a premium on a premium, right?
"Muchos muchos muchos muchos opportunity," says Elsa de Blaschke, who owns a construction company with her husband in Barranquilla, Colombia, and is hunting for an investment property to buy in Miami. De Blaschke chose not to invest the capital at home because she says Florida offers a better chance of a bigger return.
"The international buyer pool is better than we have ever seen it before," says Phillip White, president of Sotheby's International, based in New York.
To match demand, U.S. brokerages are hiring agents who can speak foreign languages and are pouring more resources into marketing overseas.
In October, agents from 11 Sotheby's International branches will descend on Hong Kong's convention center to regale wealthy buyers there with slick visuals on showcase properties. In Toronto, agents from Florida Home Finders play to crowds of 800 every other Sunday at a Holiday Inn banquet hall. Jenny Huertas, Condo Vultures' international sales director, throws seminars for potential clients across South America.
"Their jaws drop. They can't believe it," Huertas says. "They think these deals are too good to be true."
Some of these deals are. I am buying property in Las Vegas for $/SF prices last witnessed in the late 80s early 90s. I am the foreign cash buyer in that marketplace. Perhaps I am the foolish knife catcher, right?
Today's featured knife catcher
We don't need to look to foreign nationals to find knife catchers. Of course, if a buyer uses an FHA loan, who cares? The US taxpayer will eat the losses. Today's featured property was purchased for $499,000 on 5/16/2008. The owner used a $491,290 first mortgage, and a $7,710 down payment. Without much skin in the game, he didn't feel like he needed to stay on long.
Foreclosure Record
Recording Date: 08/05/2010
Document Type: Notice of Default
When you consider that this "owner" hasn't been making a payment since February, he has already recouped his down payment in squatting savings. This property has certainly cost him less to own it than it would have to rent it, and if its value had gone up, he would have made a fortune off his tiny investment.
Irvine Home Address … 170 ALMADOR Irvine, CA 92614 
Resale Home Price … $399,000
Home Purchase Price … $499,000
Home Purchase Date …. 5/16/08
Net Gain (Loss) ………. $(123,940)
Percent Change ………. -20.0%
Annual Appreciation … -8.8%
Cost of Ownership
————————————————-
$399,000 ………. Asking Price
$13,965 ………. 3.5% Down FHA Financing
4.21% …………… Mortgage Interest Rate
$385,035 ………. 30-Year Mortgage
$75,350 ………. Income Requirement
$1,885 ………. Monthly Mortgage Payment
$346 ………. Property Tax
$50 ………. Special Taxes and Levies (Mello Roos)
$33 ………. Homeowners Insurance
$271 ………. Homeowners Association Fees
============================================
$2,585 ………. Monthly Cash Outlays
-$297 ………. Tax Savings (% of Interest and Property Tax)
-$534 ………. Equity Hidden in Payment
$21 ………. Lost Income to Down Payment (net of taxes)
$50 ………. Maintenance and Replacement Reserves
============================================
$1,825 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$3,990 ………. Furnishing and Move In @1%
$3,990 ………. Closing Costs @1%
$3,850 ………… Interest Points @1% of Loan
$13,965 ………. Down Payment
============================================
$25,795 ………. Total Cash Costs
$27,900 ………… Emergency Cash Reserves
============================================
$53,695 ………. Total Savings Needed
Property Details for 170 ALMADOR Irvine, CA 92614
——————————————————————————
Beds: 2
Baths: 2 full 1 part baths
Home size: 1,307 sq ft
($305 / sq ft)
Lot Size: n/a
Year Built: 1989
Days on Market: 18
MLS Number: S633520
Property Type: Condominium, Townhouse, Residential
Community: Westpark
Tract: Lp
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Private interior location of community. Central location in Irvine. Wonderful High Ceilings, Great Sun Exposure, Plantation Shutters, Wood Flooring Downstairs. Large Kitchen with Lots of Counter Area. Dual Master Bedrooms with Spacious Bathrooms. Nice Sized Patio Area with In Ground Spa.
The FCB consortium officially thanks you for your comments. One day they hope to achieve your status. The FCB has the luxury to understand the most valuable asset in life. This is time, not money. One day the FCB hopes to achieve your ability to control your time and destiny. With that they may be able to finally achieve your level of intellect, judgement, stability, and wealth.
A lot of FCBs are people who managed to save a lot of money in their home nations, where they are either priced out of real estate, or can find only savings accounts yielding about .12% or less.They need a safe place to park their cash and hopefully make some money some day – but they are neither evil, stupid, nor omniscient.
That is, no more than native people who bought in this market.
Let’s Not Start Lionizing The Anti-Foreclosure Deadbeats
I would like to see the deadbeats out of their bank-owned shelters, and into rentals. At the same time, I would like to see the banks penalized for every fraudulent affidavit signed by their employees.
I feel so alone in my views. So under-represented. Why should I take sides? I want all applicable parties to suffer consequences.
And, yes, bad affidavits are fraudulent. There’s that word: Fraud. Fraud, fraud, fraud.
I don’t think you are alone in your views. That both parties get what they deserve is what I think also. I think many would agree with that.
Count me in on your way of thinking. Banks should be fully capable of accurately filing their foreclosure paperwork, and should be doing so for everyone who is not making their payments.
IMHO, every single employee, and their bosses, of those who falsified those documents should be tried for fraud. However, once that is done, the bank still should foreclose on the deadbeats (assuming there were no actual errors in the mortgage paperwork, and if so fix them).
You are not alone. I also tire of seeing only the loan owners being blamed or only the banks. It was both.
I blame the banks more though. People spend most of their life at their job. If their job is not finance or economics then they don’t fully grasp how things work and will make panic’ed decisions.
That is how the real estate industry worked during the bubble. Scaring people into buying. Kind of like how W scared people into Iraq. Sure, both W and the voters are to blame. But, who is more to blame?
How about this one?
http://www.sfgate.com/cgi-bin/blogs/ontheblock/detail?entry_id=74531
Family yanks 380K out of the housing ATM, defaults, and is evicted. The house is sold in the foreclosure process to an investor and then resold after there was 40K worth of work to refurbish the house.
The original family now breaks back into the house and aquats as their attorney files a lawsuit. Oh yeah, they did this with their attorney and camera crews by their side.
Worst part is that the police came out Saturday and didn’t arrest anyone.
Game changer here if all foreclosure “victims” start doing this.
No chance I buy a prior foreclosure if this attorney is going to have his clients break into my house after I buy it and I can’t get the police to act.
I got a real kick out of reading this story today. You want to talk about a clearcut case of immoral squatting, here you go. I might be more sympathetic if these folks had been current on their mortgage when they were evicted but it’s clear that they were not. Now they are trying to game the system with the “Show Me The Note” nonsense. They are going to be skewered in the end of all of this and they will be liable for the expenses. Pretty dumb. Get ready for another eviction followed by an order of restitution to the investment company that owns the house.
This is where some of the $380K went. They even rented a cherry picker to install lights
http://www.danielleslightshow.com/id1.html
OMG ROTFLMFAO if that is in fact the same people. They can be the poster children of HELOC wasteful spending. Maybe put out a donations tip jar at this years light show. I’m sure the neighbors will be sorry to see them go.
Email’s away:
Hey Danielle,
Hello from the land of people who pay their bills. As a renter who pays on time each month every month, it makes me feel great to know that the taxes being taken from my paycheck are being diverted to the banking sector to help pay off the mortgage that you will never repay. Please enjoy the free rent as you squat in that house while I keep slaving away to make your lender whole. Your entitlement is on me.
Regards,
-David
http://www.crackthecode.us/images/LightsOn.jpg
Wow.
Maybe the worst legal advice I have ever seen. I saw some bad lawyering going on the last couple of years out of foreclosure attorneys in California, but this one takes the cake.
We have a little rule called tender here in California. To challenge a foreclosure, you must tender the amount that is owed on the mortgage.
It also looks like the foreclosure has already occured. There is a heavy presumption that a foreclosure is valid in California once completed (otherwise, you would have chaos regarding title and no one would ever buy a foreclosure).
This case is a loser for these defaulted borrowers.
I’ll be a little more precise.
There is a CONCLUSIVE presumption that a foreclosure sale was valid once the trustee’s deed has been delivered.
Wow. I still can’t believe this. Wow.
One of the commentators on the WSJ article says that the attorney filed his own bankruptcy in Jan 2010.
The observer hilariously refers to it as “the bankrupted leading the bankrupted”
Would you take advice from a lawyer who can’t manage his own finances?
The observer should have said “the bankrupted leading the bankrupted against the bankrupted” to the detriment of the taxpayer, of course.
Good one, Major. You should post that over there.
Oh and apparently the lawyer was arrested the other day for the same stunt with a different family.
http://www.msnbc.msn.com/id/39660038/ns/local_news-orange_county_ca/39659722
So this hustler is basically going around finding these vulnerable folks and using them to get some attention for himself.
What kind of lawyer tells their client to go and bust the window with a hammer in front of the cops? Shouldn’t he be stripped of his license to practice law for instructing people to commit breaking and entering? WTF?
It made the news. No mention of the HELOC\refinance:
https://www.youtube.com/watch?v=3biQwMTW-1Y&feature=player_embedded
There you have it, folks. The media pumping it as some kind of a victory for these losers. Hopefully the cameras will show up again and we’ll get some good footage of the chairs being carried back out to the car.
How about that lawyer? Lookin pretty spiffy there in his suit and the media just happened to show up to cover it. Wow, what a coincidence!
What a fiasco. A total mockery of the system.
And the buyer already remodeled the house!
And the news labeled these freeloaders as “Homeowners”. No! No, they are not! They are squatters for f*cks sake!
We are headed for Thunderdome.
New development.
This attorney treid it in Newport Beach. GOt his client arrested.
http://www.ocregister.com/news/pines-271058-home-foreclosure.html
“A Newport Beach man was arrested Wednesday after an attempt to regain possession of the home he claims his family was wrongfully evicted from 16 months ago.
Rene Zepeda, 72, was accompanied by his attorney and several Newport Beach Police officers as he made his way to the back yard of the spacious home at 19 Crystal Cay and, wielding a hammer, broke a window to gain entry. Officers promptly arrested Zepeda and attorney Mike Pines for trespassing and carted them away in a police vehicle.”
It’s a myth that foreign cash buyers are smart money that purchases bargains. FCBs are generally dumb money that overpays for declining assets.
NY Times ~ Japanese Buy New York Cachet With Deal for Rockefeller Center
Published: October 31, 1989
“Richard A. Voell, Rockefeller’s president and chief executive, said Mitsubishi would pay $846 million in cash for a 51 percent interest. The proceeds will go into the family trusts established by John D. Rockefeller Jr. in 1934 and be used to diversify the family’s holdings.”
FAST FORWARD 7 YEARS
NY Times
NBC Will Buy Rockefeller Center Space
Published: May 4, 1996
“Yesterday NBC announced that it would pay $440 million for the 1.6 million square feet it has long occupied at 30 Rockefeller Plaza, the flagship building of the 63-year-old complex.”
“Mitsubishi’s worst fears, however, were realized. The real estate investment trust’s debt service on Rockefeller Center had been predicated on having the annual rents rise as high as $65 a square foot by the early 1990’s; the center was lucky to get half that amount after the recession hit.”
Oh, those smart foreign all cash buyers! LoL
You are mistaken, friend.
Manhattan is a backwater, in no way like the center of wealth, commerce, brains, and gracious homes that is Irvine. New York is a city of the past, populated by ungracious blackguards and ruffians, full of jackanapes debtors unknown to Irvine. Far to the east of even Riverside, Manhattan is a cesspool of subprime failure, too far a commute from the good jobs and schools of Irvine to ever enjoy economic growth or home appreciation.
Hydro! you hit the nail on the head!!!
thank you for the laughs! that was great!
“and just because that price is cut in half doesn’t make the price any better.”
While it still might not be a good investment, half off is better then peak price and you will get to break even much faster then if you had paid peak price.
Or am I missing something?
I was going to post a similar sentiment. It’s also not like there were no FCB’s in south FL in 05-07. Unlike what is somewhat portrayed in the article, many FCB’s now, especially the Canadians, are planning on using or renting their condos. South Americans fall into that group too, although many of them were bubble flippers too.
The article also focused on the high-end. There are lots of sub-50k condos in the Miami-Dade/Broward/Palm Beach tri-county area, and many of those are getting scooped by fcb’s.
I am sucking it up and preparing to buy a cash flow rental in Sac. They are 2+2 condos trading at 1989 prices, that now will yield 7-9% at 10 months occupancy, with 20% down. They would seem undesirable by Irvine standards, but they are > a mile from CSUS, have reasonable HOAs and are popular rentals. If this works, I’ll do it again. My point is, I would never have given this a thought until I started reading this blog. I. R. & company have made it possible to eventually retire debt free, by retiring debt. Thanks!
http://www.housingtracker.net/asking-prices/sacramento-california/
Wow. Only down 14% this year. And the Median off over 55% since the peak in 2006. Good luck to ya.
Like I tell IR. Calling a bottom to RE Prices and Rental Prices in these distressed areas is not for the faint of heart or wealth. No its not Detroit. But damn close as far as the damage done to property values.
I didn’t interpret Sac_boomer’s strategy as calling bottom; he’s buying for cashflow. Who cares what the entry price is if you can afford it and the condo brings in money.
In the worst case where there are more job losses and rents get driven down to the point where it can’t cover costs and the value is hopelessly underwater and he can’t sell, Sac_boomer could quit paying and continue to collect rent until the bank forecloses; and that’s only IF their agents properly review and sign the foreclosure documentation.
If there’s one thing that this past decade has taught me is that traditional beliefs regarding homeownership have gone out the window; there’s no point in trying to be responsible when you know you’ll get bailed out and be able to walk away free. Risk takers get rewarded. Conservative savers get left in the dust.
The only thing that could really change this mentality is to make mortgages full-recourse and prevent mortgage debt from being discharged during bankruptcy.
Thanks! I’m not calling bottom. This is just a point where cash-flow buyers are entering, and I am joining them. It’s strictly a cash flow deal, If the value goes down or never goes up, it won’t matter. I am gambling on the possibilty of rents going down though. I am trying to make this a non-emotional transaction based on what return I can expect and what risk I can accept. I am trying to conciously wipe out the notion of appreciation.
Sac.
As long as you consider it gambling your doing just fine. Hopefully you live in Sac still. Having to travel or paying someone to manage your rentals will really take a huge chunk out of the incentive if you live down here. “What do you mean the plumbing is backed up and flooded the unit”. Or my favorite. I am only 3 months behind on my rent. Give me a break please. Or like Lowrdr says. Just collect rents and let em go to forclosure if it does not pan out.
Sacremento bottomed last April 27th, 2009:
http://www.redfin.com/city/16409/CA/Sacramento
(graph in the middle of the page, sold figures)
Basically every single market bottomed in Spring or Summer of 2009. Now, condos are doing worse than houses there, like in most markets, and might still go down. Of course, all of this is immaterial for a cash-flow rental property.
It’s foolish to underestimate the impact of FCBs in Irvine
TIC’s 2010 NHC sales surpassed everyone’s expectations.
They’ve ramped up building in Portola Springs, with Laguna Crossings and Orchard Hills on deck.
In other news, residential construction remains at a stand still or is non existent in most parts of the state and country.
Hey Ten
I wonder on the Laguna Crossing build how those cash buyers are going to enjoy the concerts blasting below the hill behind them. More than likely this will be the end of the Amphitheater once those go to market next year. Bummer.
You are correct. Irvine Meadows will be permanently closed prior to buildout of Laguna Crossing.
Ignoring FCBs really shows little understanding of Irvine’s current trends and Irvine’s future.
I would like to see more of these 2008 housing gamblers who are throwing in the towel. We’ll be seeing a massive surge in strategic defaults by the younger folks in this group over the coming year or so as they come to realize they were had back in ’08 and manipulated into buying overpriced properties from baby boomers.
Wasn’t this home purchased after the meltdown when losing loans were supposedly obtainable? I’ve seen another situation where a home owner refinanced and is now in the position to short or walk away (and likely will) just three months later. Are tax payers still picking up the tab for money the banks are giving away in todays market?
Prices were already falling significantly, but they really fell off a cliff after the stockmarket crash in the fall of 2008. I guess you could say this happened during the meltdown, but goofy loans were still available in May 2008 if you looked hard enough.
Billion dollar home
http://www.telegraph.co.uk/news/worldnews/asia/india/8063385/Indias-richest-man-Mukesh-Ambani-moves-into-630m-home.html
Don’t confuse FCB’s with new immigrants with good jobs and a healthy habit of saving. I would venture to say that most of the so called FCB’s in Irvine are actually immigrants mistaken as foreign buyers (many potential buyers I bumped into at open houses who carried their conversion in a language other than English actually work in OC), not foreign investors. Historically new immigrants tend to congregate in the same area and prefer to live close to people with the same cultural background. There are also added benefits of stores and restaurants and other social services that cater to people who speak their own language.
Irvine seems to have become a new immigrant center of some sort – particular for people of Asian origin. This trend certainly provides a boon to the local RE market due to new immigrants’ saving habit and obsessive drive to get their offspring into a good school. But markets heavily relying on immigrants’ cash often see their good fortune change over the time for these simple reasons:
1. The place may reach saturation and high RE prices drive new comers to surrounding cities. New immigrant children will eventually improve the school quality (I mean test scores) in those peripheral areas once critical mass is reached. And buyer pool gets diluted and dwindles.
2. The 2nd or 3rd generation will not be as attached to the place as their parents and move out. The place will lose its lure over time.
IMHO Irvine is quickly approaching its mature stage as the new Asian immigrant hub. I have seen increasing number of new comers got completely priced out of the market and decided to move to other cities. It’s just a matter of time. Think about all the parts of LA, SF or NY that at one time or another in history that were identified with the people of a particular ethnic group who lived there, and take a look at those places today – and you will know what I mean.
One example is “Little Italy” in NYC…. the real Italians all moved to Jersey and Staten Island, and now it’s now just an extension of Chinatown.
Keep in mind it took 50 years for that transformation to occur, and there were different circumstances that enabled it (one being the development of the Interstate Highway system in the 60s).
Asian immigrants are also aware of the different classes within their culture; there are plenty of other Asian hubs in SoCal that are much less expensive than Irvine (Norwalk/Cerritos comes to mind), but there’s definitely an appeal to Irvine over those places.
I’m not trying to say that Irvine is immune from any price declines (it’s going to fall just as hard as the IE, just give it more time; there’s still a lot of hope and a lot of people looking to put their money somewhere that seems to have more hope than a -2% return); but the Asians buying in Irvine are buying for the same reasons anybody else is.
I know from personal experience that
there is a very
close link between foreign cash buyers
and resident immigrants. I have seen
with my own eyes bank statements of
accounts maintained by recent immigrants
for cash rich relatives who wanted to
get money out of a country with a lot
of corruption (in which they were
heavily involved).
I have been saying that there is a lot
of foreign money being spent in the
desirable middle and upper class
neighborhoods in SoCal. I’m glad to
see more discussion of this issue here
in IHB.
The national business press has picked
up on the foreclosure slowdown due to
less than ideal documentation, and the
legal cases mentioned above. I wonder
what the experts at IHB think of the
problem. Will it be possible to
get title insurance if you purchase a
foreclosure in the near future? This
is something that has me really
worried. Am I worrying needlessly, IR?
I’m thinking about making some real
estate deals next year if the market
here and in the Northwest are both
favorable. Hopefully no crazy assault
on the whole residential real estate
mortgage industry by the shysters
representing the deadbeats will
cause everything to grind to a halt.
By deadbeats, I mean the “strategic”
defaulters and HELOC abusers. If
you’ve lost your home because of an
unforeseen dramatic loss of income,
don’t put the shoe on. But I still
think that foreclosure is necessary in
your case too. No one is entitled to
make a commitment to pay a debt and
then walk away with everything without
paying. If you don’t pay on your
car, you get it reposessed. If you
don’t pay on your home you get it
foreclosed. In bankruptcy, a Judge
decides by the law what you can and
cannot keep.
Joe