Orange County continues to experience a pullback in foreign investment—specifically from Chinese buyers—for high-end homes, according to local real estate experts, who say that downward pressure on prices and the volume of sales are likely to result.
An influx of Chinese buyers in coastal OC markets such as Irvine and Newport Beach helped drive pricing increases and a frenzied pace of sales from 2011 to 2015 in particular, according to John Cain of Pacific Sotheby’s. There’s been a tapering off since then, and a few signs of improvement, he said.
Catalysts for the drop in interest and price points include the Chinese government’s tightening control on outside investment and a weakening yuan.
It has “impacted demand, stripping the market of a significant number of willing, ready and able buyers,” Cain said.
Larry Webb, who steps down as chief executive of New Home Co. (NYSE: NWHM) at the end of the month, said in a recent conference call that “a reduction in demand from the Chinese buyer has impacted the move-up sentiment within coastal California.”
Webb’s two upscale projects in Newport Beach’s Crystal Cove community—which finished last year—were the priciest of any large-sized development in OC the past decade.
Pressure Points
According to a recent report by the National Association of Realtors, foreign investment in the U.S. housing market has dropped 36% in the past year, with Chinese investment experiencing the largest drop of 56% to an estimated $13.4 billion worth of residential property bought between April 2018 and March 2019.
Rex McKown, a luxury real estate broker at Compass, said there is still demand from Chinese buyers in Orange County, but at a lower price point than in previous years.
“That market has pulled away from deals that are $15 million and above, and is not as interested in newer product types like the ones coming online in Crystal Cove,” McKown said.
He added that all of the homes sold in Pelican Hill and Pelican Crest in the past year have been Chinese buyers, with the interest “between $8 and $10 million.”
McKown has one listing in Irvine, a $19 million Shady Canyon estate. It hasn’t received any interest from Chinese buyers, he said.
This pullback could lead to lower home prices and a “normalization of the local market,” McKown said, which may be exacerbated during next year’s election.
“Prices could fall, but they have been fairly healthy here for some time,” he said.
