Chinese investors are buying up Detroit

Real estate buyers are snapping up dozens of properties, often sight unseen. Where else can you buy a 2-story home in the US for $39?

By Forbes Digital Dec 10, 2013 12:08PM

Detroit, broke with almost no prospects for recovery, is the fourth most popular U.S. destination for Chinese real estate investors. 

And it was bad news -- the city's July 18 bankruptcy filing -- that triggered renewed interest. "While the bankruptcy is viewed as a bad thing elsewhere, it raised the exposure level of Detroit's real estate market in China," says Evonne Xu, a Michigan attorney catering to Chinese purchasers. Middle Kingdom, meet Motown.

Chinese shoppers can't resist a bargain. Where else can you buy a two-story home in the U.S. for $39? China Central Television, the state broadcaster, in March reported that two houses in Detroit cost the same as a pair of leather shoes. No wonder a poster on Sina Weibo, the Twitter-like service, pitched, "Seven-hundred thousand people, quiet, clean air, no pollution, democracy -- what are you waiting for?"

Who says the Chinese are waiting? Dongdu International Group of Shanghai bought, sight unseen, two downtown icons, the David Stott building for $4.2 million and the Detroit Free Press building for $9.4 million, both at auction this September. 

Moreover, Chinese purchasers are making bulk purchases of inexpensive properties -- those selling for $25,000 or less -- in the rings surrounding the city center. "They're banking on the downtown resurgence spiraling out into those rings," explains Kelly Sweeney of Coldwell Banker Weir Manuel. Mainland parties often buy at tax and foreclosure sales, hold their property and patiently wait for appreciation.

The Chinese certainly have made an impact on the locals in Detroit. "I have people calling and saying, "I'm serious -- I wanna buy 100, 200 properties,'" said Caroline Chen, a real estate broker in nearby Troy, Michigan, to Quartz.com. "They say 'We don't need to see them. Just pick the good ones.'" Chen reports that one of her colleagues sold 30 properties to a Chinese investor.

The Chinese are coming, but what are they doing? Dongdu International will make a big contribution to downtown by redeveloping the Detroit Free Press building, turning it into a retail and residential complex, but that ambitious plan appears to be the exception. China's rich are investing in the Motor City like they invest in their own country, where they buy multiple units at a time. In China, like here, they often keep their acquisitions vacant, treating new properties like stores of value. 

The Chinese buy-and-hold tactics in Detroit suggest patience, but that's not the whole story. The bigger story is that the parking of wealth offshore indicates capital flight. The Chinese have only 13% of their wealth outside China, according to Oliver Williams of WealthInsight, while the global average is 20% to 30%, so some of transfers of wealth abroad are normal for a developing society. 

But it's not just money that is fleeing. A study conducted by Bank of China and Hurun found that more than half of China’s millionaires have taken steps to emigrate or are considering doing so. This statistic tells us the transfers of cash out of China are not just normal diversification.

There is substantial disagreement as to how much Chinese individuals have already stashed offshore. Boston Consulting Group estimates they hold $450 billion in assets outside their country, and WealthInsight believes the number to be $658 billion. 

Yet everyone agrees that the figure, whatever it is, will go up fast. Boston Consulting, for instance, predicts offshore assets will double in three years. CNBC late last month called the movement of Chinese capital "one of the largest and most rapid wealth migrations of our time: hundreds of billions of dollars, and waves of millionaires flowing out of China to overseas destinations." 

So the Chinese buying up Detroit says less about the prospects of Motown than what they think of their own country. It’s not like the Motor City is a good place to invest. It has what is surely the worst housing market in the U.S. "I've been in the Detroit area for 35 years," says Chen, the broker from Troy. "Thirty-five years ago downtown Detroit was like this, and it’s not getting better."

She's right. After all, who can love a city where the most powerful figure is a bankruptcy judge, the state has had to take over the local government, and creditors are about to cart off the art museum?

But as grim as the future is for Motown, it is evidently better than China's, at least according to many Chinese. They are pouring their cash into Detroit. 

More on Forbes

385Comments
Dec 10, 2013 1:35PM
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Maybe if our Government hadn't allowed our entire manufacturing base to be moved overseas because "fair trade" put money in their pockets, we'd still have money in our pockets and we'd still be buying our own properties.

"Fair Trade" isn't.
Dec 10, 2013 1:38PM
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In 1970 all we bought from China was chop sticks. Today they are eating our lunch and competing for world resources. We gave our jobs to China to "sting" the Russians. Instead we STUNG ourselves.
Dec 10, 2013 1:50PM
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Well, Detroit had its chance to corner the Automotive Industry all the way up to the 80's, the place was booming most of the time.  But instead Corporate Greed + Greedy Unions gave that away on a Silver Platter to the Japanese,Koreans, and now the Chinese too.


And now it's coming back full-circle. Wow.  

Dec 10, 2013 1:35PM
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More power to the Chinese; they are very patient and look at 100 + years from now; Americans are so short sighted and easily bought, such a shame on us.
Dec 10, 2013 1:50PM
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40 years of big local government, unions and a progressive liberal agenda. What did you liberals think was going to happen? It is always the same, the unions and progressive liberals get control and business the educated and the wealthy just leave, leaving the progressive liberals to wallow in there own unprogressive and destructive agenda.

        Ask Greece, Italy, Spain, Portugal and the UK how well the unions and progressive liberals has worked out for them!

        Now that the unions and progressive liberals have control of most of the government and we have 17 trillion in debt , We have false job numbers and low labor participation rate , What do you think is going to happen to the US if we allow the progressive socialist liberals to keep control of your government?

Dec 10, 2013 1:47PM
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The Russian bought up Coney Island in NY and now its a nice place to go again. Seems foreigners are the only ones that can clean up the mess UYS politician make.
Dec 10, 2013 1:53PM
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If China buys Detroit, maybe they will bring some manufacturing jobs back too!
Dec 10, 2013 1:54PM
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The unions have run many businesses out of business.  Has anyone seen the Toyota, Nissan or Mercedes factories in the states clamoring to join?  The pay for union members was ridiculously high.  At one time the unions for decent working conditions.  The government made laws to take care of that issue with OSHA, The Labor Dept., etc.  The unions only other goal was pay or benefits, i.e. healthcare.  Guess what?  The union bosses don't get bonuses on benefits for the members; only on the money given as membership.  Raise the dollar per hour, the union dues go up and the bosses get raises.  However, the cost of goods sold goes up and the consumer can't afford it so the company looks for other means to produce.  Everyone wants a deal.  If you don't believe me; go look in the Wal-Mart and Dollar Store parking lots.  Union members; learn to fight for better benefits, that can be gotten cheaper due to your numbers instead just more money as that makes goods cost more and creates a vicious cycle.
Dec 10, 2013 1:55PM
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big mistake letting this happen, it will turn & bite us big time down the road
Dec 10, 2013 1:46PM
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A City sold to China.   Wondering who's next? Watch out America - the CHINESE are coming.
Dec 10, 2013 1:47PM
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Of course they are, and our government, or lack of it, will let them. Even though an American can't go to china and do the same. As long as there is a place in government for democrats, we'll be selling the farm.
Dec 10, 2013 2:25PM
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Wikipedia;

With much consideration and emotional discussion, the House of Representatives approved NAFTA on November 17, 1993, 234-200. The agreement's supporters included 132 Republicans and 102 Democrats. NAFTA passed the Senate 61-38. Senate supporters were 34 Republicans and 27 Democrats. Clinton signed it into law on December 8, 1993; it went into effect on January 1, 1994. Clinton, while signing the NAFTA bill, stated that "NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement."

Clinton and the Congress could have stopped it, but they did not.
Dec 10, 2013 1:52PM
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Who is buying up Detroit?  Hopefully white people.  The only way to turn Detroit around is to bring white people (and Asians and Latinos too) and their votes into the city.  If Detroit wants to improve itself then the established negrocracy has got to go, and the only way to make that happen is to vote the SOBs out.
Dec 10, 2013 1:51PM
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At least there won't be a shortage of dry cleaners
Dec 10, 2013 12:47PM
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I knew it......maybe when the Chinese start feeling like the dollar is equivalent to toilet paper, they'll start the next real estate buying boom.  Hell, maybe they could come in, set up a few car factories and "enterprise zones" with their own flown-in labor from China, and show us how it's done, with the right P.R. campaign.   We need jobs, and I think unions' days are numbered......
Dec 10, 2013 1:50PM
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Their investment ticker initials are OCP; for a better Detroit!
Dec 10, 2013 1:39PM
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Yeah the Chinese gonna turn this city into Shanghai twin then people would be flock to own piece of it later.
Dec 10, 2013 2:27PM
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57000 companies have moved their plants to china. we signed a world trade agreement in 2001. Our businesses here don't have the same playing field as they do in china. China has a slave labor force, and no epa restrictions. To  even out the trade gap we need tariffs on goods from countries that don't have the same set of standards for human rights and pollution concerns.  We all need to stop purchasing Chinese goods, as much as possible. I'm also against foreigners buying up America. Can you buy property in China?
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