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Foreign Buyers Are Energizing the Southern California Market
 Foreign nationals and U.S. home buyers leveraging foreign money are taking advantage of favorable exchange rates and lower home prices and interest rates to purchase second homes in Southern California and to provide funds for their children to purchase their own homes.
Whether looking for investment properties or starter homes, these foreign buyers have turned Southern California into a truly global real estate market because, for the first time in decades, real estate prices here are a bargain.
According to Real Estate Economics, which tracks real estate sales in Southern California submarkets, the second quarter of 2009 saw 627 new communities spring up in Orange, Los Angeles, Riverside and San Bernardino counties. Of those new communities, 38 achieved sales of four or more units per month.
The region saw the trend continue into the third quarter of 2009 as 323 more new-home communities were begun, with 79 of them selling more than four units per month.
Though some of the foreign buyers have come from the Middle East and the Indian subcontinent, most are from the Far East.
At MBK Homes sales centers in Southern California, we have seen a 70% increase in buyers from Asia since April 2009. Drawn by the appeal of Southern California’s attractive climate, many have indicated that they are eager to own an upscale, quality home in the United States, particularly in Southern California’s western Inland Empire region of the Southland.
Perhaps most importantly for our region and market, these foreign buyers did not arrive with that sense of fear and hesitation that has been prevalent among prospective American home buyers during the downturn.
Instead, the foreign buyers view Southern California home prices and the current financing terms as a bargain. Consequently, they are coming to the table as confident, decisive prospects with cash on hand, thanks to the relative stability of their own national economies. In many cases, these buyers are self-employed and have little reason to be discouraged by high unemployment levels in the U.S.
Because the market is so favorable to their situation, they generally boast very attractive FICO scores and often buy homes with downpayments of anywhere between 15% and 50% of the purchase price.
Most of these eager new buyers are purchasing homes in every segment of the market — entry-level homes, move-up homes, second homes and higher-end homes in locations that enable them to be near children and grandchildren. Low pricing and desirable locations have made these properties so attractive that there are often a number of bids on the same property, especially on homes closer to the coast.
What's more, these buyers seem unphased by the amount of foreclosed properties in Southern California. Many of these buyers do not want to wait for the deals on foreclosed properties to come through or to spend time or money making the necessary repairs on these properties. Instead, they are gravitating toward the competitively priced new-home communities in the region. Many prefer a turnkey move-in and low-maintenance home that requires no repairs.
Even with this influx of foreign buyers, builder margins in Southern California remain narrow because of the many price drops needed to make product attractive to a dwindling buyer base over the past several months. In some areas, however, land prices have increased by as much as 50% during the recent period, which can be a harbinger of a similar increase in housing prices.
Even so, areas such as the Corona Valley, Chino and Chino Hills, and Western Riverside and San Bernardino counties are showing encouraging signs of life. Also encouraging is that these upticks are being seen not just in entry-level, single-family product but in condo sales and upscale homes as well.
As the real estate industry continues its slow, steady climb out of the trough, foreign buyers in Southern California not only bring vitality to a depressed market, they represents a trend that can be nurtured and valued, regardless of the condition of the U.S. economy.
Timothy Kane is president of MBK Homes, the home building division of MBK Real Estate Ltd., the U.S. real estate development arm of Mitsui & Co. Ltd., one of the oldest and largest trading companies in the world. MBK Homes develops quality single-family homes and condominiums throughout California for both the entry-level and move-up markets, and is currently building projects in Riverside, San Bernardino, Los Angeles and Orange counties as well as Sacramento. For more information, visit www.mbkhomes.com.
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