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Tina Mak, Broker at Coldwell Banker Westburn Realty: The China Syndrome

Posted by Dave Crumby on Oct 27, 2016 10:44:00 AM
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Tina Mak, broker, Coldwell Banker Westburn RealtyThe following is a chapter from the book REAL: A Path to Passion, Purpose and Profits in Real Estate. The author of this chapter is Tina Mak, broker at Coldwell Banker Wesburn Realty. @tinamak

The fall of the Berlin Wall ushered in a period of profound global political transformation and economic liberalization. Previously closed economies joined the community of trading nations. This has created a new burgeoning middle class in developing countries. Nowhere has the positive and far reaching consequences of this new reality been more apparent than in China.Powered by the Internet, the information society has transformed the global economy in ways we could not have previously imagined. Everything is now mobile: People travel freely between countries; data is open and shared at warp speed; trillions in various currencies are transferred instantaneously at the touch of a button. Borders and nationalities are less relevant than they ever have been. Technology has made our world a much smaller and tighter community. Globalization is not just a buzzword; it’s an ever-present reality.

The astounding potential of this economic reality still has not fully sunk in for most observers and policy makers. China is now the second largest economy on earth. That growth will continue at a robust pace.

As a region, Asia is more substantial than at any other time in the history of civilization. Yet to many in the West, it remains a mystery. Some view China, for instance, with fear. Others view it as an immense opportunity to create wealth, prosperity, and bring people closer together.

The rise of a massive and growing middle class in China is an entirely new phenomena. We’ve seen the early impact. Armed with savings and disposable income, an increasing number of Chinese have entered the North American real estate market. Some families are looking for a safe-haven for their life savings, others seek a place to retire. As prosperity spreads and China’s economy grows, another 600 million people are striving to reach middle class status.

While this undoubtedly creates challenges for Chinese policy makers, it represents a tremendous opportunity for those of us in the real estate industry in North America’s West Coast. British Columbia, Washington, Oregon, and California are highly favored destinations for Chinese investors. The communities are livable, safe, accommodating, and welcoming. The weather is temperate—winters are neither too cold nor too hot. Relative to world markets, these locations offer tremendous value. And of course, the geography is among the most spectacular on the planet.

Canada has been a very attractive destination for overseas real estate buyers. The stability of the political and investment climate, relatively low prices, and the sheer beauty of the country has generated robust activity compared to other key markets.

Of those making Canada a preferred destination, investors from China and India have flocked to British Columbia and the greater Vancouver region. Over twenty-five percent of residents in Greater Vancouver, Canada’s third largest metropolitan region after Toronto and Montreal, speak Chinese as a first language.

So far, the Chinese have not been a dominant player in all sectors of real estate; their investments have typically been focused within China itself. However, Chinese citizens have been investing in London, Singapore, Sydney, and New York.

And in recent years, they have intensified their activity in North America’s Pacific region. There are signs that Chinese buyers are setting sights eastward, too, in search of long-term value and returns on investment.

Mainland Chinese, now cash rich, are actively searching for new places to deploy their capital. In June 2013, Sun Hung Kai Properties, Hong Kong’s largest developer, sold almost 90 percent of units on offer in Hong Kong for its River Green project in Vancouver within a month when it debuted last month. Centaline Property said that about half of those sales went to Chinese buyers. The South China Morning Post reported that Hong Kong’s overseas property transactions jumped nearly 50 percent in May 2013 from a year earlier, of which Mainland Chinese made up a fifth of sales.

All of this is driving a paradigm shift in the way real estate agents deal with the newly affluent and middle-class clients from China.

Money does have direction, though. It flows, as always, where the best returns can be found. Money is dispassionate and today has no borders. Money is objective, unemotional, and wholly lacking in prejudice. Its one and only criteria is the search for the best return at the lowest possible risk.

I am often asked how to do business with Chinese clients. Being intimately familiar with the language, culture, and mindset of your client is an indispensible attribute. If you don’t understand your client or don't have the capacity to communicate with them, you are at a serious competitive disadvantage. But beyond that obvious truism, in the final analysis, Chinese buyers are really no different than anyone else: The Chinese client wants to trust the person they are doing business with.

Being successful in the real estate business is no different than what it takes to be a successful contributor in any other business. A few very basic principles transcend this industry. In a nutshell, they can be summarized as:

  1. Know your customer better than anyone
  2. Know your market better than anyone
  3. Know your product better than anyone
  4. Know the economics of getting to “yes”
  5. Know the broad macro factors which affect those four factors
  6. Always be straight and honest in your dealings with people

While borders matter less today, relationships have never been more important. Building relationships based on trust must become a fixation, requiring thinking and acting with a decidedly long term, not short term, outlook. In my experience, I have found that an emphasis on the short term might very well land you a sale, but chances are it won’t nurture a sustainable business.

This perspective also means that you must be honest, sometimes brutally and relentlessly so, with advice and opinions. I treat my clients the way I want to be treated: as an intelligent person that takes my hard earned money very seriously. Like the clients I typically work with, I expect facts and analysis with a bare minimum of sugarcoating.

Asians, which in my definition broadly includes Middle Eastern, South East Asian, and Chinese, are all tough and direct negotiators. We’re also social animals. We typically prefer to make a deal in a social environment. The common denominator among us is that we like to feel that we have “won” in any negotiation. “Face” is critically important.

Those seeking a principal residence are the easiest to work with. Those making a pure real estate investment, focused on the bottom line, are skilled negotiators. The latter are typically very savvy and experienced investors, which means they are tough and demanding customers.

There are a variety of ways to reach out to buyers from China and the rest of Asia. They range from immigration consultants & lawyers, agents in China for international students, travel agencies, and franchise owners in Asia. Of course, one of the most reliable is the good-old-fashioned referral.

There are generally two types of clients in the market for a principal residence. Those who invest to obtain a US Green Card (or Landed Immigrant status in Canada), usually look for comfort, and a luxury home to display their affluence and status. These clients are typically willing to spend a bit more. They also want space, meaning a lot of land, which the typical Asian finds highly desirable, largely because it is so rare in the native country. Despite their toughness as negotiators, Chinese are often willing to overpay for land because of their belief that it is safe, secure, and always rises in value.

Ironically, don’t ask them to pay for an architect and designer to build a high quality home! If they do agree to hire a designer, make sure the person can communicate with them in their language. Chinese tastes are very distinct and are not best served by Western designers. In my experience, furnished properties sometimes solve the headache.

The second type of client are those who immigrate as skilled workers. These clients don’t have deep pockets. preferring to buy something less expensive first and upgrade later.

But in both cases, these potential buyers are interested in newer properties and seldom look at anything over ten years old. 

An increasing number of sophisticated Chinese are active investors and seek to protect and even extract a meaningful return on capital. While the range and depth of data points and analysis naturally increases with this kind of customer, the general approach is the same: they want the best possible deal and will fight hard to get it. We Chinese are very shrewd investors. To gain the trust of the Chinese buyer and investor, you must be as smart and tough as they are.

As I write this, Chinese investors are holding their collective breaths to see if the banking crisis predicted by Chinese economist Li Zuojun will come to pass. Li’s past forecasting accuracy has earned him the nickname “China’s most successful doomsayer.”

Li also says that housing prices will collapse. Speculation has it that new Chinese president Xi Jinping will maintain tight controls to ensure that any drop in housing prices will not be too dramatic, possibly limited to about 10-20%. However, Li says that a United States-like collapse is not out of the question.

The potential economic and political implications of a Chinese failure can cause buyers a case of the jitters. But it can also mean buyers export capital to safe havens, such as the North American real estate market. Either way, I know two things for sure: China’s economic might will be a powerful contributor to a new dynamic in the North American real estate landscape; and we have no choice but to get used to and try to take advantage of the seismic abnormalities of this new normal.

Emerging economies will continue to grow for the foreseeable future, fueled by a new, educated and sophisticated middle class. This newly prosperous constituency will aggressively seek out investments in North American real estate.

So while the global economy adjusts and expands to this new normal, there is uncertainty, but for the entrepreneurial realtor, a magnificent reward waits to be seized.

 


 

About The Book

REAL book coverMost real estate books fall short. REAL goes beyond mere tactics and strategies to focus on the core of what really matters - You. In addition to the authors' lessons learned, this book also includes contributions from some of real estate's most influential thought leaders: Tina Mak, Marc Davison, Spencer Rascoff, Sherry Chris, Krisstina Wise, and many more.

If building a real estate business that lasts is important to you, this is a book you surely won't want to miss!

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