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Wealthy Chinese Are Desperate to Buy Your Vacation HomeBy
Tuesday, September 28, 2010
My friend is visiting from Shanghai. Last night, he told us some incredible stories about the crazy rise in real estate prices in China...
Take his parents, for example. They live in Qingdao, a fast-growing city on the east coast between Shanghai and Beijing. His parents bought a house on the beach seven years ago. It's gone up six times in value since they bought it and is now worth over $1 million.
My friend works at a Shanghai mutual fund company. He says his coworkers have all made fortunes buying property in Shanghai. One colleague bought an apartment "way out" in the suburbs where there's no subway. Its value has almost tripled in 18 months.
I asked him why people are so desperate to own property. He says China is gripped by a genuine inflation scare right now. People don't want to hold cash. The rich convert their money into foreign currency and move it offshore. Everyone else buys property.
In April, the Chinese government introduced new laws to prevent property speculation. There's a new sales tax on property held for less than five years, for example. A minimum 40% down payment is another. The idea was to put the brakes on the property market and kill the inflation fears. At the time, people thought these rules would cause buying to dry up and the property market would crash.
"They didn't even slow the market down," said my friend. "My apartment has gained 30% since April."
Here's the thing: While the Chinese property market soars, the U.S. property market is stuck in a bog. Last week, the Commerce Department announced that house prices had fallen to new six-year lows in August. New home sales are at the lowest levels since the government began collecting data in 1963.
The Chinese have noticed how cheap American property is... and instead of plowing their money into expensive properties in China, they're eager to get their money into American real estate. Everyone is afraid the Chinese government will do something stupid to get a handle on inflation, like causing the real estate market to collapse. Cheap U.S. real estate is the perfect solution...
Take my friend's parents... They plan to sell their house in Qingdao and use the proceeds to buy two houses in Fort Lauderdale. They'll live in one house and generate retirement income by renting out the other house. This way, they'll have a great retirement in Florida. And the rental house will keep them busy and provide an income. Most importantly, they'll get their money out of China.
My friend says this trend is going to grow into massive proportions over the next few years. To capitalize on it, he plans to set up a consultancy business helping Chinese invest in South Florida. He'll show them properties, handle the taxes and paperwork, and help them find tenants if they need income. In return, he'll earn commissions and fees.
Florida has beautiful beaches, great golf courses, no state tax, and near-perfect weather. Above all, it's an easy way for foreigners to get capital out of their home countries. It's not just the Chinese who are eager to buy... Rich Venezuelans and Colombians love Miami. So do wealthy Europeans. Snow birds from Canada and the Midwest love Naples. The Brits love Orlando.
This safe-haven status puts a floor under Florida property prices. And the coming Chinese interest is just another reason for buying deeply discounted Florida property.
While I don't expect prices to rise for a few years, there's almost no downside risk to Florida property at current prices.
Consider taking a trip to Miami or Naples and touring a few beachfront houses. If you ever wanted to buy your dream retirement home... or start a new career as a landlord... you can't go wrong in Florida right now.
Good investing,
Tom
Further Reading:
Last month, Steve revealed his strategy for doubling your money in real estate. "Importantly," he writes, "this strategy works even if prices go nowhere." The first thing to remember is "don't get greedy." You'll find the rest of Steve's rules here: Oceanfront Florida Lot Just Sold for $164,000.
Steve recently visited one coastal Florida town with more buying opportunities than he's ever seen... anywhere. "Residential real estate prices are probably down 50%," he says. "If you can swing it, it's probably time to buy... right this second." Read more about what Steve found here: Florida's Panhandle: Supreme Buying Opportunity.
Market NotesTHE DOLLAR IS GETTING FLUSHED DOWN THE TOILET The topic of the week in the precious metals market: "What's driving gold and silver prices higher and higher? Should I sell and take profits?"
Today's chart is the driving force behind the hot topic. It's the past 12 months of trading in the U.S. dollar.
Last week, Ben Bernanke told America he's ready to do anything in his power to keep the U.S. economy inching along. This means he'll do anything to support asset prices like stocks and housing... even print up fresh money.
The market is reacting to Ben's idea by flushing the dollar. As you can see from today's chart, the dollar has been clobbered to its lowest low in more than seven months. Real "hard money" assets like gold and silver are soaring to their highest levels in decades as a result.
That covers the first part of our topic. And the second? Sure... gold and silver are overbought in the short term. They're due for a "relief" correction. But our view is, take a page from China's playbook and use any weakness in the precious metals to buy more.
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