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Wed March 5, 2014
No, Chinese investors aren't 'buying up Detroit' – but they do have an eye on the Motor City
Since Detroit filed for bankruptcy last summer, there have been lots of stories going around about major Chinese money pouring into city real estate.The headlines tend to read something like: “China is buying up Detroit.”
In truth, there’s not much hard evidence to support that kind of dramatic claim.
But by all accounts, Chinese investors are eyeing Motor City real estate – they just don’t seem in a big rush to buy.
Are foreigners really buying up cheap land in Detroit?
When Detroit went bankrupt in July 2013, it made headlines all over the globe.
That’s how many people in China found out about the city’s glut of incredibly cheap real estate – sparking a lot of excited Internet chatter.
Then some Detroit real estate agents started talking about growing interest from Chinese property buyers. They reported some clients looking to snap up properties in bulk, and on the cheap.
And finally, a China-based international real estate website listed Detroit as the fourth most-popular U.S. city for Chinese homebuyers. But those rankings came from counting search terms, not tracking actual deals.
All this added up to some rather dramatic headlines, but hard numbers have been elusive.
So how might we gauge Chinese interest in vast swaths of Detroit real estate? Enter the Wayne County property tax foreclosure auction.
“One of the indicators of (if) is there actually interest from China – and are the funds flowing into Detroit – would be participation in our auctions,” says David Szymanski, Deputy Wayne County Treasurer. “Because our auctions sell thousands and thousands of parcels of property at very reasonable prices.”
In Wayne County’s 2013 auction, nearly 20,000 properties hit the auction block – about 90% of them in Detroit. Some could be had for as little as $500.
Three years ago the auction went online, and investors from all over the world could join in the bidding. But when Szymanski crunched the numbers for the most recent auction, he found that 99% of purchases still came from the U.S. – and most of those from Michigan (click here to see a list of top buyers).
And while a tiny portion did go to foreign investors from places like Canada, Peru, and Singapore, not a single one appears to have come from China.
Admittedly, this is an imperfect measure. Overseas buyers can hire a U.S. agent to bid on their behalf, and there are lots of other ways to buy property.
But Szymanski says all this talk about massive Chinese investment in Detroit real estate seems to have been quite…inflated.
“This thought that the rest of the world is buying Detroit seems to be misplaced," he says. “Although I’ll be very honest – I want the participation of other countries. I would love to see the money flow in.”
A lot of people feel that way. Detroit’s many abandoned homes and vacant properties are a big reason why it went bankrupt, and the city can’t tackle the problem too effectively while it’s broke. Enter foreign investors.
"Just getting started"
While the idea of a massive Chinese land-buying spree in Detroit seems pretty thin, there are solid signs Chinese investors have a growing interest in the city.
At least, Jerry Xu thinks so. He’s president of the Detroit Chinese Business Association, a non-profit group that works to grow business ties between southeast Michigan and China.
Xu says that most Chinese investment in Detroit thus far has been in the automotive industry. But with the bankruptcy, Detroit real estate has also become a hot topic in China. Investors are intrigued by the cheap prices – but they also see many of Detroit’s underappreciated assets as potentially great investments.
“We have the most beautiful riverfront – some of it used, some of it still waiting to be developed,” Xu says. "And we have lots of beautiful buildings, that if you can polish them up, (they) can be top-notch buildings.”
All this comes at a time when cash-rich Chinese investors are pouring money into real estate all over the U.S. and around the world. And while Detroit’s market is depressed right now, a possible turnaround could eventually bring investors a higher return than in other cities.
Xu predicts Chinese investment in Detroit real estate is “just getting started.” Late last year, a Shanghai-based investment group bought three major, historic commercial buildings in downtown Detroit. While the buildings are largely vacant and need work, the Chinese investors still couldn’t believe the price tag.
So with Chinese real estate investment soaring around the globe, Detroit could cash in with investors looking to diversify their holdings.
But local and state political leaders play a role here, too – particularly Michigan Gov. Rick Snyder. Snyder has gone to China every year since he was elected, building personal relationships with business leaders—something Xu says is especially critical to doing business with China. Snyder was the keynote speaker at the Detroit Chinese Business Association Chinese New Year's gala last week.
“He’s done a fantastic job promoting Detroit and Michigan in front of Chinese investors,” Xu says.
Xu says he’s gotten a lot more calls about Detroit since the bankruptcy. But he admits that for now, there’s a lot more scouting going on than actual deals.
Opportunity, and some unease
Some people in Detroit aren’t thrilled about the idea of massive foreign investment. With so much cheap land available, there are fears that lots of large-scale purchases could concentrate ever more land in wealthy investors' hands – while doing relatively little for the current residents of America’s poorest big city.
And when those buyers are from overseas – particularly from China – a lot of people get even more uneasy.
Detroit resident and property manager Eric Criteser says that could create long-term issues.
“Oh, it certainly could,” Criteser says. “It could also create a hell of a lot of opportunities for property managers in the city of Detroit.”
Criteser is still building his business in residential property management. At this point, he cares more about attracting sound, community-minded investors who will improve life in Detroit neighborhoods where residents have seen nothing but decline for generations. It doesn't matter so much where the money comes from.
Currently, Criteser is managing properties for a mix of local, national, and international investors, including one woman from Canada. And just recently, he heard from an investment group overseas.
“Here I am, pretty small fry, and I get phone calls from people in Hong Kong,” Criteser says.
Firm numbers are hard to come by, but so far, most available records and anecdotal accounts like Criteser's point to a diverse mix of players in Detroit's real estate scene.
So while this idea that Chinese or other foreign buyers are swallowing up Detroit land has been very overhyped, there is a kernel of truth to it. There just seems to be a lot more curiosity and scouting than actual investment going on for now.
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