The confluence of a vibrant economy, ideal climate, and intellectual capital draws people to Silicon Valley from around the world. This melding of cultures, ideas, and approaches only serves to intensify the appeal of this area. As the demographic profile of the area changes, so does the real estate market. These changes can be seen in increases in construction, all-cash offers, shrinking inventory, and resultant appreciation, especially in areas with top-performing schools.
In order to understand the shift in the local real estate market, it is helpful to consider the places from where the buyers are immigrating. By and large, foreign buyers hail from large cosmopolitan areas with strong education and high-tech industries. These areas include Taiwan, the Chinese cities of Beijing, Guangzhou, and Shanghai, the Indian destinations of Bangalore, Chennai, and New Delhi, and emerging economies like that of Vietnam.
Generally, these areas share a few similarities. First, “nice” is often synonymous with “new.” The most affluent and desirable areas tend to have a breadth of new construction. As a result of this ingrained belief, many of the people who relocate to the States favor new or newer construction in very good condition. Thus, a grand dame of a home in Old Palo Alto that would appeal to New Yorkers and even many Europeans may be passed over in favor of a newly constructed home with an in-law suite in Midtown.
However, people of all nationalities vary in personal taste and preference. Occasionally, the marketing of properties that cut across typical trends yields strong results because these ads stand out from the more expected homes. We saw this in a recent historic Victorian we listed in Palo Alto, which saw robust open house attendance thanks, in part, to ads in the Chinese newspaper and on Chinese radio and television. It is also of note that smaller lots found in many parts of Palo Alto and surrounding areas may not deter buyers from countries where land is limited and housing is dense. Therefore, not surprisingly, the convenience of Palo Alto may hold more appeal than the rural charm of places like Woodside or Portola Valley.
Once foreign buyers have found the perfect house, they need to submit an offer that will be considered competitive in this hot seller’s market. Fortunately, foreign buyers tend to favor all-cash purchases for a combination of cultural and practical reasons. On the cultural side, many countries do not share the American acceptance of debt—especially long-term debt. On the practical side, it is simply harder for buyers to obtain credit when the majority of their income and credit history exists outside of the United States. While some banks, most notably HSBC and Citi, have begun to lend based on international credit history and foreign income, the approval process takes considerably longer. Although all-cash offers may be both more convenient and competitive for the well-heeled foreign buyer, this may not be possible for many foreign buyers. Therefore, sellers evaluating multiple offers should consider the reasons for a longer requested escrow period and weigh the offer’s strength in light of the circumstances.
In addition to the impact on the offer process, the shift in demographics over the past 20 years has reduced housing inventory. The typical “American dream” of home ownership involves a consistent upgrading of homes throughout one’s lifetime. Generally speaking, college graduates save money for a down payment, buy a condo or small house to live in, and then desire a larger home as they begin to build their families. Most often, they will sell their first property and use the proceeds as a down payment on their next property. However, many foreign buyers utilize a buy-and-retain strategy. When it is time to upgrade, many foreign buyers retain old properties as investments. Thus, there are fewer and fewer properties coming on the market each year. By way of example, there were 38 homes listed in Palo Alto in the first 15 days of February in 2010, but only 22 homes listed during the same period this year. Naturally, this reduced inventory contributes to the strength of local real estate prices.
While it is inappropriate and, in fact, illegal for a seller or real estate agent to steer people of a certain ethnic group towards one house or area, it is wise to remain cognizant of cultural factors that may impact the potential buyer pool. This can range from advertising in foreign language papers, staging the home to appeal to foreign buyers (e.g., considering feng shui elements), and weighing offer strength in light of all circumstances.
Foreign buyers, most notably from China, continue to be an important portion of the buyer pool. We anticipate this trend to continue well into the foreseeable future, especially in light of shifting policies and regulations in China and relaxed visa requirements. Therefore, for 2015 we are further intensifying our marketing towards China through premium relationships with several real estate sites that are behind the “Great Firewall of China.”