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The real estate war on the west coast

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Across the street from a run-of-the-mill Starbucks in the Kitsilano neighbourhood of Vancouver is a two-storey Ferrari and Maserati dealership. Locals will tell you with amazement that it is the highest-volume location in North America. Whether or not that’s true, the five homeowners gathered today around a table at the Starbucks want to make clear that Ferraris are not for people like them. Though their homes on the west side of the city may be worth millions of dollars, they do not consider themselves rich. “It’s really hurtful when someone says, ‘You live in a $2-million property, so that means you’re a wealthy person,’ ” says Mary Lavin, an English teacher. “Um, no. Not at all.” Lavin points to her car in the lot, a 1998 Toyota Tercel. “I’ve had one holiday in my life.”

Premica Baines, a retired federal government worker, notes she walked here from her home in Point Grey, which is assessed at around $4.5 million. She even brought her own coffee. “The majority of the people who are not living in the neighbourhood think we have lots of money in our accounts,” Baines says. “It’s not true.”

They do, however, have lots of equity in their homes, which the provincial NDP government has moved to tax at a higher rate. The government announced a change to what’s called the school tax, a levy derived from property values that helps fund the education system. Starting next year, some residents will pay an additional 0.2 per cent on the amount by which their property values exceed $3 million, and 0.4 per cent on the portion above $4 million. (For a $3.5-million home, that’s an increase of $1,000 per year.)

READ ALSO: Where to buy real estate in Greater Vancouver 2018

The change has deeply angered the west side of Vancouver, where large detached homes perch on leafy, green lots. Residents have launched petitions, staged protests and erected yard signs claiming the tax is “hurting seniors and working-class families the most!!!!” Home values have skyrocketed in the area, but incomes have not. Those who purchased property many years ago don’t necessarily have extra cash on hand.

Around the table, there are multiple objections to the tax. Mainly, the group feels targeted because of their home values. “We don’t think it’s fair that it’s only applied to certain individuals and not others,” Lavin says. “That appears discriminatory.” Lavin bought a duplex in Kitsilano two decades ago for $500,000, and it’s now assessed at just over $2 million. The tax does not apply to her. “My concern is that it can be arbitrarily lowered to a $2-million property, which would impact me.” Recently, a UBC professor called for increasing property taxes on homes worth more than $1 million. “Personally, I’m fearful,” says Lavin.

The effect of the government’s fixation on housing wealth, they say, is to sow harmful social discord. “When you single out a part of the community, and fuel that discrimination by talking about the haves and the have-nots, it’s not only bad policy, it’s bad for our community,” says Jeff Petter, who works for a medical technology company. “We find that is morally repugnant.” (He doesn’t want to say how much his property is worth, but allows it’s “absolutely absurd.”) Baines nods in agreement. “I had dinner with some friends last night, and the person who is renting was attacking the people that were there,” she says. The renter was telling the homeowners to just sell their homes and enjoy the windfall if they were so worried about taxes. “What kind of response is that?” she says.

Houses line the street of Dunbar neighbourhood in Vancouver, BC on May 29, 2018. (Photograph by Jimmy Jeong)

While the issue of housing has long strained the city’s social fabric, it’s now creating discernible tears. Owning a home here costs 85.2 per cent of a typical household’s income, the worst level ever recorded in Canada, according to RBC. Even a condo eats up half a household’s earnings. Everyone seems to feel like a victim: homeowners fretting about taxes, locals priced out and forced to move to suburbs, and those struggling to find anywhere to live in a place where the vacancy rate is less than one per cent. There is fierce disagreement over the cause of the crisis—insatiable demand or a lack of supply—and, as a result, no consensus on solutions.

As part of an effort to tackle affordability, the NDP government has opted for taxation to reduce demand. In addition to the extra school levy, the province increased and expanded the foreign buyer tax and put in place a so-called “speculation tax,” which applies to vacant homes in select regions. Finally, the province boosted the property transfer tax on high-end homes, and expanded disclosure requirements to end hidden ownership. “We finally have a government that’s serious about housing affordability and is willing to see prices fall,” says Joshua Gordon, an assistant professor in the school of public policy at Simon Fraser University. “That’s not to be underestimated as a force.”

Polls show the NDP’s affordability measures have broad support, but not everywhere. For the first time in years, those who have ostensibly benefited from Vancouver’s real estate boom—homeowners, investors, flippers and the entire industry—feel threatened. “The NDP is creating class warfare, and using real estate to drive the wedge,” fumes real estate agent Keith Roy. Someone, he notes, recently defaced lawn signs on the west side protesting the school tax, scrawling “EAT THE RICH” on them. “Homeownership is being punished,” he says. “Success is being vilified.”

On a recent weekday morning, David Williams is giving a walking tour of his block in Dunbar, on the west side of Vancouver. At 64, Williams is retired from a career in finance, and he walks briskly through the quiet streets describing who bought which house when. His tour is really about how wealth—or hot money, he believes, referring to foreign capital—is transforming his neighbourhood. “The guy across the lane from us, he tore down an old house, built a whopping new house, and he had a Rolls-Royce and a Ferrari in the garage,” he says.

David Williams describes the changing neighbourhood of Dunbar In Vancouver, BC on May 29, 2018. (Photograph by Jimmy Jeong)

The trend for years has been to purchase a home, knock it down and build an even bigger one. The clash of styles—squat, old bungalows next to towering three-storey mansions—bothers him. “Here’s a brand spanking new house, built on spec. I think they listed it for eight,” he says, meaning $8 million. “It’s a f–king ugly house.” It’s rare to walk a block without passing a dumpster filled with refuse from a home construction project. And then there are the four empty homes on his street. He stops in front of one. “They can’t even pay for a gardening service,” he says, pointing to the long, weedy grass.

Williams and his wife purchased a home in Dunbar almost 30 years ago, when it was more of a working-class area. Today, their property is worth $4.4 million, but the neighbourhood feels as though it’s emptying out. “There are fewer families, let’s call it that way,” he says. Halloween once brought upwards of 150 kids to his door. Now he gets maybe 50. A neighbour of his used to collect $25 from every household to purchase fireworks and put on a show once a year. Three years ago, the neighbour returned Williams’s money. Only a few households chipped in, and there hasn’t been a fireworks show since.

If Williams ever sold his home, he has no doubt the buyer would knock it down. But who could even afford it? “Well, not a Canadian,” he says. “The next buyer of any of these houses here is not somebody who earns their income in this province.” Williams says he would gladly accept a 50 per cent reduction in property values if it meant that younger residents, including his own children, could buy into the neighbourhood. But he knows that will never happen. He’s read the news stories about wealthy offshore buyers, and students and homemakers who somehow own multi-million-dollar properties. “For guys like me who pay their taxes year after year, it just pisses you off,” he says. “The government doesn’t appreciate why people are pissed off.”

His fear, shared by many in Vancouver, is that the city will become a playground for a rootless class of nouveaux riches. The perception is that this trend is well under way. A few years ago, a television producer launched Ultra Rich Asian Girls, a reality series following the extravagant lives of four young women in Vancouver. (It lasted only two seasons.) Exotic vehicles are not an uncommon sight on city streets, and last year the province’s public insurer jacked up premiums on high-end vehicles since repair costs are becoming a concern. The Insurance Corp. of B.C. recently spent more than $790,000 on damage claims for a Ferrari that crashed into a utility pole. And when a nine-year-old rapper and Instagram personality named Lil Tay went viral recently, she seemed to embody the worst excesses of the Vancouver housing market. In her videos, she crudely belittles viewers for not being as rich as her, poses with Lamborghinis and in high-end condos, all while flashing stacks of cash. Her mom, as it turned out, worked as a Vancouver real estate agent.

READ ALSO: What does the new normal in real estate look like?

The province’s tax measures are designed to address the very issues that so aggrieve long-time residents. By making it more expensive to own homes in Vancouver, especially for offshore buyers or those simply wanting to park money, demand will ebb and affordability will improve. Or so the government hopes. Homeowners like Williams are skeptical. Many believe deep-pocketed foreign buyers won’t be dissuaded by additional taxes. They also argue the tax measures don’t exclusively target offshore wealth, but sweep up those with local incomes, too.

Gordon at SFU argues the speculation tax in particular will bite, however. “It’s difficult to dodge, and it’s not a one-time tax.” Owners of homes left vacant for at least six months of the year in Metro Vancouver and a few other jurisdictions are subject to the tax. Foreign owners and so-called satellite families (households that have high foreign incomes but little local earnings) pay two per cent on the value of their properties, while others pay one per cent. Some may opt to sell or rent out their properties. The province has not said how it will define a satellite family, nor how many households are actually in this situation. But studies have found tens of thousands of wealthy immigrants have arrived in B.C. through programs that offer permanent residency in return for investment. A 2014 federal report of a defunct program found business immigrants declare “considerably lower” personal incomes than those who arrive through some other programs.

B.C. Liberal Leader Andrew Wilkinson says satellite families are unfairly maligned. “If they are Canadian citizens, on what basis are you going to say this is an invalid way of life?” he says. “Suppositions are made based on the ethnic appearances of people, that somehow they are this class who are predatory speculators,” he says. (Asked about what responsibility his party, in power for 16 years, bears for the affordability crisis, he demurs. “To look into the past and look for scapegoats serves no purpose,” he says.)

Supporters of the NDP’s new measures contend they are part of a necessary shift in the province’s approach to taxation. “We had a tax system that told the world to come buy real estate here, but don’t work for a living,” says Tom Davidoff, a professor at UBC. Property taxes are relatively low compared to other cities, creating an incentive to buy real estate, but not earn or accurately declare local wages, avoiding the brunt of income taxes. Davidoff says the NDP’s tax measures finally start to address this problem, though it’s necessary to tilt the scales even more aggressively by cutting income and sales taxes, and raising property taxes further. Politically, that would be difficult since it places a bigger burden on seniors who have accumulated a lot of housing wealth.

Already, the reaction to the school tax shows what awaits politicians who wish to tackle that issue—even when steps are taken to forestall blowback. Those over 55 years old can defer payment of the school tax until a property is sold, for example. Given the rapid price appreciation in Vancouver, the amount of tax due is likely to be a very small portion of the sale price. But to opponents, deferring is like taking on government-mandated debt. “I don’t want to be borrowing,” says Sepideh Ziabakhsh, who owns a $4-million property. “I mean, I have,” she clarifies. Ziabakhsh and her husband have a mortgage on their west-side home, which they bought 12 years ago. They also recently drew down from a line of credit to fund a much-needed kitchen renovation. “I’m an optometrist and he’s a lawyer. You would think we have it made, but we don’t,” she says. Ziabakhsh and her husband are not yet in a position to defer, in any event. “If they keep increasing taxes, they’re going to push us—who are middle-class—out of our homes.”

Houses line the street of Dunbar neighbourhood in Vancouver, BC on May 29, 2018. (Photograph by Jimmy Jeong)

Davidoff himself is a target for his support of the new measures. One angry homeowner wrote a letter to his neighbours denouncing Davidoff as a “socialist” and encouraged them to write to his employer to muzzle him. Davidoff wasn’t expecting that kind of reaction, but he’s also not completely surprised. “Back in college,” he says, “someone once told me real estate brings out the worst in people.”

Darren and Hannah have seen the same real-estate-fuelled rage, but for different reasons. The young Vancouver couple run a blog called City Duo, which recounts their experiences supporting new housing developments. The pair often attend open houses and council meetings related to residential real estate proposals to support development. Although they’re homeowners, they have friends who have struggled to find rentals, still live with their parents or moved away due to the region’s housing crunch. More supply of all kinds, they believe, can help. “We believe it’s important for people to know what’s going on so they can have their say,” Hannah says. But the anti-development vitriol is so intense they use pseudonyms online.

People have told them off, screamed at them and come inches from Darren’s face. “There were a couple of times I was concerned I could get hit.” At one open house for a proposed rental building on the west side recently, some attendees demanded city staff throw them out since the couple didn’t live in the neighbourhood. At the same meeting, one man likened the development to a “forced abortion.” The proposal called for 12 units.

Why some residents of a region in the midst of an affordability crisis would oppose development is puzzling to Darren and Hannah. The couple categorize the resistance into three broad camps: those simply afraid of what change will bring; those who feel development plans have been forced on them; and finally, people who simply don’t want change. “They’re in it for their own selfish desires,” Darren says. “They’re happy that their property values have gone up. They bought into exclusivity and feel they’re entitled to it.” While that attitude isn’t exclusive to the west side of Vancouver, neighbourhoods replete with detached homes tend to be the most vocal in opposing increased density. (Ironically, many west-side neighbourhoods have seen their populations decline in recent years.)

READ MORE: Why everyone should buy real estate in…Brantford?

Support for development has come at a political cost for Hector Bremner. He won a Vancouver council seat last year for the Non-Partisan Association, a local political party, running on a pro-development platform. But in May, the NPA board rejected his candidacy for the mayoral election later this year. There were concerns about conflicts of interest, since Bremner works for a media relations firm that represents developers. But Bremner claims he was turned away for his views on housing. “It had everything to do with it,” he says. “There was a takeover of the board of, essentially, anti-housing people.”

Bremner is forming a new party to tackle Vancouver’s housing crisis, and development remains a key pillar. “We are not going to tax and ban our way to prosperity,” he says. The city has made progress in allowing laneway homes and basement suites, but Bremner argues that’s not enough. “Families deserve more than raising their children in the basement suite of some 70-year-old house,” he says. With no city-wide development plan, growth happens on a piecemeal basis. If residents had more certainty about how their neighbourhoods will develop, and that the necessary services and amenities will be there to accommodate new residents, there would be far less tension, he argues.

Indeed, opposition to development can’t be reduced to NIMBYism. Developers have a bad reputation in some quarters. Westbank, for example, is helping spearhead an outfit called Creative Housing, which has the goal of constructing 50,000 rental units in Vancouver and Toronto. Meanwhile, an ad for a Westbank condo called the Butterfly appeared in a Singapore newspaper in February playing up the investment opportunities. The ad trumpeted a 13.5 per cent capital appreciation, while highlighting Vancouver’s low 0.9 per cent vacancy rate. (Westbank says the majority of the units were bought by locals, and those sold abroad were purchased by new immigrants to Canada, not investors.)

Number of Vancouver homes worth over $1 million skyrocketed from 2014 to 2018

2014: Indicated in red, 23 per cent of single-family residential properties in Metro Vancouver assessed at more than $1 million

2018: Indicated in red, 73 per cent of Vancouver single-family homes are worth more than $1 million

The criticism is that developers build not to house people but to maximize profits from investors, speculators and the wealthy. Metro Vancouver’s housing stats lend some credence to that view. In the past 20 years, the region averaged 1,411 market rentals and 421 social housing units. That compares to 16,489 houses, condos and the like for purchase.

These pressures are coming to a head in Vancouver’s Chinatown district. Melody Ma spearheads a group called #SaveChinatownYVR that aims to fend off “predatory real estate developers and speculators,” according to its website. Unchecked development risks erasing Chinatown, and a significant part of Vancouver’s history and culture, the group argues. Walking through the neighbourhood, Ma points out all the ways development has already altered the character of the area. Many of the newer residential buildings, in an attempt to blend in, feature red accents (“Red, China—get it?” she deadpans), while a large green lantern sits awkwardly atop another building. “That actually looks like a mosquito lantern to the rest of us,” she says. Such ersatz features ring hollow, she argues, while the buildings risk displacing long-time Chinatown residents, many of whom are low-income seniors.

“This building is just a big block of gold,” Ma says of a rental complex on the eastern edge of Chinatown. The building’s gold trim seems to glitter in the sun. During construction last year, a firewall collapsed and damaged the small building next to it, which housed the Lee’s Benevolent Association of Canada, a clan association and social club. The group had to temporarily move out. Meanwhile, a 430-sq.-foot unit in the building, which is marketed with the slogan “Where Eastern culture meets Western living,” goes for $1,700 per month.

Last year, Ma and other community groups vigorously fought a nine-storey condo. Vancouver’s permit board rejected the proposal, the first in 11 years. The site is an empty lot surrounded by a chain-link fence today. Just down the street is a sleek showroom for another condo called Sparrow. She points to the scale model of the condo inside the showroom, which resembles a luxe boutique hotel. “Who is this really for?” she says.

The question might be applied to all of Vancouver. “We’ve had 16 years of a government that refused to do anything on the housing file, except build and build market housing,” says Andy Yan, director of the City Program at SFU, referring to the B.C. Liberals, now in opposition. Meeting at an east Vancouver café, Yan pulls out his laptop and opens a presentation he gave recently to an affordable-housing conference. One slide shows the percentage of homes worth more than $1 million in Metro Vancouver. In 2014, the figure stood at 23 per cent, represented by a cluster of red mostly confined to the west side. Yan flicks through each successive year, and more areas bloom bright red. As of this year, 73 per cent of single-family homes soared above $1 million. “We could have made certain circuit breakers, and we wouldn’t be in this mess,” he says.

Yan knows how divisive conversations around Vancouver real estate can be. For years, he was amassing research showing the influential role of foreign capital, predominantly from the Asia-Pacific region, and how the market detached from economic fundamentals and even our conception of what housing is for. Yan’s findings were met with skepticism at best. He was even accused of fuelling xenophobia. He likens the reaction to climate change denial.

But the recent government policies are a start, he says. He would still like to see a tax on flipping, but the measures offer at least some hope that property in Vancouver will become less of a commodity, and homes will just be places to live again. To get there, prices must slow, wealth must be taxed, neighbourhoods must densify—not just with condos, but affordable rental and social housing stock, too. “It’s a test of civic virtue,” Yan says. “What community can be built from what we’re willing to sacrifice? That’s the test.”

This article originally appeared on Macleans.ca

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Landlord critic James raking in cash from real estate interests

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After shaming the city’s “worst landlords” for years, Public Advocate Letitia James is hauling in donations for her state attorney general campaign from developers, management companies and other real estate interests.

The real estate industry has donated at least $213,655 to James’ AG bid since May, a Post review of state campaign filings shows. That’s nearly one fifth of her total $1.16 million haul though mid-July.

Sixteen limited liability companies in real estate gave $64,500, including an LLC under big city developer Two Trees. Donors linked to real estate firm and film studio developer Steiner NYC have given $15,100.

The wife of real estate mogul Gary Barnett gave $10,000. His company, Extell Development, sued the state attorney general’s office in 2010 after then-AG Andrew Cuomo said it had to let condo buyers out of their contracts.

Eugene Schneur, of development company Omni New York, put up $10,000 for James, while billionaire real estate investor Alexander Rovt gave $5,000. Neighborhood Preservation PAC, a pro-landlord group, donated $5,000.

The attorney general’s office enforces rules over co-op and condo sales and probes real estate fraud and other violations. The office is part of a tenant harassment task force and has prosecuted property owners like Steven Croman, the so-called “Bernie Madoff of landlords.”

James touts the passage of City Council legislation forcing landlords to improve conditions on her campaign website. As public advocate, she releases an annual list of the city’s “worst landlords.”

The campaign said it ensures no donations come from those landlords or other bad actors, particularly in the real estate industry. Tenants PAC, which advocates for tenants, endorsed James in June without a formal announcement.

Spokeswoman Delaney Kempner said James is supported by a “broad spectrum of New Yorkers” because they know she’ll fight for them.

James also took in at least $369,815 from unions and other labor interests, and at least $80,650 from the construction industry. Lawyers and law firms put up at least $78,225.

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Closed-End Real Estate Funds Are Performing Well

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The real estate market is booming, with record prices being paid for everything from modest single-family homes to trophy office towers.

Not surprisingly, closed-end funds that focus on real estate have been posting good numbers so far in 2018, even as other CEFs struggle amid rising rates.

CEFs focusing on real estate saw a 1.5% increase in net asset value in June, behind only closed-end utility and growth funds, according to a survey by Tom Roseen, head of research services at Thomson Reuters Lipper.

For the second quarter, that number was 4.7%, rising to 5.3% over the past year, the survey finds.

Some closed-end funds have done even better. Resource Real Estate Diversified Income’s eight funds saw gains in net asset value in the second quarter ranging from 6.4 to 6.8%. RMR Real Estate Income Fund saw 5.2% growth in the second quarter, while the four Total Income + Real Estate funds are averaging a 5.3%.

Yet even as investors in real estate CEFs bank their returns, the savviest are keeping one eye on the business horizon for the next downturn.

Unlike utilities or infrastructure, where demand isn’t completely tied to the business cycle, real estate is very much a cyclical market, with big booms and big busts.

“How long will we have this glut of demand and long will it continue, and, if it turns, how quickly will it go south?” are some of the questions investors are asking, Roseen says.

REIT Boost

For now, though, closed-end real estate funds are on a roll. And they have Real Estate Investment Trusts, or REITs, to thank for the recent spate of good returns.

REITS, which include some of the biggest players in the real estate business, like Boston Properties, Equity Residential, and Simon Property Group, have been on a tear the last four months after a sluggish start to the year.

REITs posted their fourth monthly gain in June, with a total return of 4.2%, according to the National Association of Real Estate Investment Trusts. After a rocky January and February, REITs have posted a cumulative return of 14.6% through June, beating out the S&P 500’s much smaller 6.2% gain.

REITs that own hotels, student housing, prisons and self-storage complexes posted double-digit gains in June – corrections REITs topped 16%.

Direct Investments

Yet it’s not just all about the REITs, with managers of closed-end real estate funds also boosting returns by investing directly in real estate, whether its healthcare facilities or office towers.

And the structure of closed-end funds provides managers with the kind of stable capital they need to take on riskier investments, such as directly putting money into buildings and projects.

Closed-end funds issue shares during an IPO. The number of shares remains fixed and does not expand or contract based on market activity like it does with an ETF.

The fixed number of shares means closed-end fund managers don’t have to fear a big outflow if they start buying shares in a high-reward but high-risk sector. Shares can change hands in daily trading but the overall number stays the same.

“They can go into deals that some fund families would not be able to do that on the open end side,” Roseen says.

Unlike open-end funds, which dominate the market, or ETFs, for that matter, managers of closed-end real estate funds can also use leverage to buy more shares and pump more money into everything from office buildings to self-storage facilities, boosting returns.

Potential Bargains

Closed-end real estate funds are also selling at an attractive discount to net asset value.

That means their share prices are lower than the value of the portfolio of assets in the fund.

There are a couple factors that help create discounts in both closed-end real estate funds and in the closed-end fund world as well.

After a closed-end fund issues shares through an IPO, the number of shares remains fixed and does not expand or contract based on market activity like it does with an ETF.

This fixed-share structure means the price of a closed-end fund trades at each day on various exchanges and the net asset value of its underlying portfolio typically float independently of each other.

And while this can sometimes result in closed-end share prices that trade at a premium, or higher than their net asset value, or NAV, more frequently it results in a discount situation.

For closed-end real estate funds, the average discount is 8.37% and the median discount is 7.89%, Roseen says.

Taking that average number, that means you can buy a dollar’s worth of REIT shares and real estate for a little under 92 cents.

Risks to Mind

While all this may sound intriguing, there are some real risks to keep in mind.

Real estate busts can be as spectacular as real estate booms. Just recall the plunge the real estate market took amid the Great Recession, with record numbers of foreclosures, and not just of single-family homes.

A number of prominent office towers were also taken back by their lenders or auctioned off. Boston’s marquee Hancock tower smashed local records when it sold for $1.2 billion in 2007 to a New York investment group, only to be turned over two years later to a group of lenders for $665 million.

And money sunk into real estate can be tough to unwind, especially when prices are falling.

“People want to buy these illiquid assets and trade them on a daily basis, but the real world doesn’t work like that,” Nuttall says.

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China's Crypto Millionaires Are Using Bitcoin to Buy Real Estate Abroad

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The chives growing in one crypto tycoon’s California mansion carry a hidden message.

Guo Hongcai, a beef salesman turned early bitcoin adopter from China’s Shanxi province, is one of many freshly minted millionaires funneling parts of their wealth out of the country by purchasing real estate abroad.

In April, Hongcai sold 500 bitcoin in the U.S. then used that money to buy a 100,000-square-foot mansion in Los Gatos, a 90-minute drive from San Francisco, California. His Rolls-Royce, also purchased with the fruits of bitcoin arbitrage, sits in the driveway close to a small chives garden.

“It’s very normal to sell bitcoin in the U.S. After selling bitcoin, you can just buy anything you want,” he told CoinDesk.

Guo calls this secondary residence his “Mansion of Chives,” because the vegetable is also Chinese slang for crypto investors who prove vulnerable to big sell-offs.

As Chinese regulators clamp down on industry business on the mainland, crypto millionaires are turning to foreign real estate markets to diversify their holdings. Some purchase property directly with crypto, others like Hongcai use bitcoin to gain foreign currencies without going through a bank.

The founders of one U.S. crypto real estate startup, who spoke on condition of anonymity, told CoinDesk roughly one-third of their prospective users hail from Asia, figures which include Chinese investors seeking tokenized property rights through Hong Kong securities brokers.

According to the South China Morning Post, real estate purchased in Hong Kong doesn’t require the same taxes and documentation as other financial assets held abroad. Chinese investment in foreign real estate, often through Hong Kong brokers, has been rising for years. Now early bitcoin adopters are utilizing new wealth for familiar patterns.

“The requests we have from them start at $50,000 or $100,000 up to, the latest one was $3 to $4 million for Silicon Valley,” Natalia Karayaneva, CEO of Propy, another crypto-powered real estate marketplace, told CoinDesk.

She added:

“We’re seeing that more and more people are willing to buy properties with cryptocurrencies because it’s getting easier to get their money out of the country using bitcoin, rather than establishing a bank account based in Hong Kong and getting their money out of the country using business channels.”

Crypto hubs

According to Karayaneva, the U.S. and the U.K. are the most sought-after locations for real estate, especially fintech hubs like London or California’s Bay Area.

“They were mostly interested in residential properties next to good education, like Stanford,” she said. “Also, they want to diversify. They want to have parts of their assets abroad in more stable countries.”

So far, around half of the traffic to Propy’s website comes from China, out of 50,000 monthly views.

It’s a trend that has implications far beyond China, though, especially in California, where, according to statistics gathered over a decade by ATTOM Data Solutions, nearly a quarter of all single-family homes are now purchased in all-cash transactions without a mortgage.

According to CEO Roy Dekel at SetSchedule, a California-based startup helping licensed real estate agents connect with buyers and homeowners, it’s more common for Chinese bitcoin veterans to convert cryptocurrency into cash than to buy property directly with it.

“We have noticed a drop in Chinese interest, but certain cities like Los Angeles, San Francisco, and New York remain strong,” he told CoinDesk. “The ultra-wealthy Chinese have used this source as a diversification of investment.”

High rollers

On the other hand, Dekel also noticed “many blockchain enthusiasts” are buying second homes or investment properties, leading to an uptick in sellers interested in accepting cryptocurrencies directly from international buyers.

Since platforms like Propy are compliant across jurisdictions, the reason behind this trend may go beyond tax evasion, speaking to real pain points in legitimate markets.

In January, The New York Times asserted that China’s exorbitant housing market is “like a casino.” Further, Reuters reported property development restrictions continue to tighten, such as reduced subsidies for housing developers.

“In Beijing, only last year they saw a 40 percent rise in price,” Karayaneva said. “Historically, real estate investors from China are very active abroad because their own property market is going crazy.”

All things considered, Chinese buyers are hardly the only ones purchasing property with cryptocurrency. In 2017, Europeans used bitcoin to buy luxury apartments in Dubai’s Aston Crypto Plaza, a project spearheaded by British Baroness Michelle Mone.

Wherever it’s taking place, though, it has become increasingly clear that crypto wealth could have a real impact on global real estate patterns.

Door image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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