Real estate transaction data suggest, and anecdotal reports appear to confirm, that the number and proportion of foreign purchases in the Puget Sound region are increasing. An uncertain but growing share of homebuyers appears to be headed this way from Vancouver, British Columbia, in the wake of a recent unfavorable tax change there. As quoted in Bloomberg in December 2016, Realogics Sotheby’s International Realty (RSIR) broker Lili Shang attributes a surge in purchases to that change. “The tax was the trigger of this new wave of investment now coming to Seattle,” Shang said. “Why pay more for the same thing?” By February 2017, Shang was quoted by the Wall Street Journal as being even more confident that demand had shifted south of the Canadian border: “I think people realize that Vancouver is no longer a fun place to invest,” she said. Similar sentiment was offered by members of RSIR in separate interviews to follow in Forbes, CNBC and Globe and Mail, with headlines effectively stating that Seattle has become the new Vancouver.
On July 25, 2016, the government of British Columbia Premier Christy Clark introduced a 15-percent transfer tax on sales to foreign buyers and entities representing them, for residential real estate purchases in the Greater Vancouver Regional District. The tax exacerbated a trend that had already begun by June 2016; over the next eight months, Vancouver witnessed a year-over-year reduction in selling volume. By the year’s end, the number of sales greater than CN$1 million were off by 16 percent from 2015, according to Sotheby’s International Realty Canada’s Top Tier Report.
Brad Henderson, President and CEO of Sotheby’s International Realty Canada observes, “Many foreign buyers have personal interests in Vancouver. The city remains desirable to live in, with its top schools, prime location on the Pacific Rim, and vibrant Chinese community.” But for now, “demand from international buyers who are pure investors has shifted to other Canadian cities (e.g., Toronto and Montreal), to B.C. communities outside Metro Vancouver (e.g., Victoria), and outside the country (e.g., Seattle).”
The numbers of Chinese immigrants to Seattle have been growing in recent years. Figures from Migration Policy Institute (MPI) show that from 2011 through 2015, King County welcomed 52,600 new resident immigrants from China. This is only 10.8 percent fewer new residents than those estimated to have been received during the same period from the State of California (58,940), from which most of Washington State’s domestic transfers arrive.
These arrivals coincided with higher sales in some of the most affluent neighborhoods on Seattle’s Eastside that are popular with Chinese buyers: the city of Bellevue, and its “satellite” enclaves of Medina, Hunts Point, Clyde Hill, and Yarrow Point. This sub-region saw year-over-year transaction volume (i.e., the number of sales) increase by 12 percent in October, 54 percent in November, and nearly 20 percent in December, with growth continuing into 2017. (See the chart below, “YOY Change in Transaction Volume, 2016 vs. 2015.”)
This flip-flop in market preference has been dramatic. Just two years ago, Chinese wealth-reporting group Hurun showed Vancouver was preferred by 13.6 percent of respondents as the third-ranked destination for wealthy Chinese immigrants, with Seattle ranking fifth at 8.5 percent. By this past fall, those percentages had reversed, with Seattle ranked third and drawing 12.8 percent of respondents, and Vancouver reduced to sixth place with 7.1 percent.
Yet Chinese have been buying Puget Sound real estate in ever greater numbers of transactions for years. What has changed, if anything, but the trajectory?
Well, that didn’t take long
In early August 2016, when RSIR research staff first reported the impending hike to the real property transfer tax on foreign purchases of real estate in British Columbia’s Lower Mainland, we admitted that the outcome for both the Vancouver market and its alternative markets in Seattle and Toronto was unclear. Others, including some active professionals and investors in the Vancouver market, were quick to declare a catastrophic exit was looming.
Still others dismissed the prospects for any substantial shift. In October 2016, Zillow’s chief economist Svenja Gudell pessimistically asserted that the number of “foreign buyers closed out of the Vancouver market” was unlikely to increase in any consequential way. Gudell supposed that foreign buyers had priced in the tax before it took effect, although the B.C. government had notoriously provided only a few days’ notice before imposing the increase. In the subsequent story from Bloomberg, she restated: “I can easily buy the story that we’re seeing a ton of foreign buyers here, I just don’t think they’re all from Vancouver.” That is likely true, as new investors who were destined for Vancouver appear to have diverted their interest to the Seattle area.
Efforts to shut off the outflow from Vancouver began on January 29, 2017, with the Clark government’s announcement of an exemption for foreigners with work permits who live and work in B.C. The province’s business, technology and advanced education sectors have lobbied for such an exemption, citing concerns about their ability to recruit workers to live and work in the province. In Henderson’s view, “This will reverse some of the tide of people adversely affected by the tax.”
Of course, new buyers in Puget Sound need not be coming directly from Vancouver. Rather, we have expected that some foreign buyers with plans to invest funds in Vancouver real estate, either as prospective homeowners or as real estate investors, would consider Seattle as a compellingly cost-effective and livable alternative to Vancouver. Now, it appears they have.
Furthermore, w don’t see a decline in interest on the horizon. The Puget Sound’s local economy continues to feed the local boom. A report from Axiometrics shows that in 2016, “Seattle [was fifth] in the nation in terms of total jobs gained—with 62,500 for the year,” and job growth here continues to accelerate. Job-related relocations generated by our tech-based economic engine complement the flow of new immigrants to our region.
There is a countervailing trend against the inbound flood of Chinese buyers in the form of two key domestic policy initiatives by the Chinese government led by President Xi Jinping. The first of these efforts is Xi’s ongoing anticorruption campaign, targeting graft by Chinese Communist Party officials, which dates to nearly the inception of the Xi presidency. This campaign has had the effect of putting certain transactions even indirectly involving politically exposed persons under the microscope. The second policy initiative is the enforcement and tightening of existing rules against the transfer of Chinese funds overseas for, among other purposes, transacting in real estate.
While overseas real estate purchases have always been subject to prohibition, conversion of funds for overseas purchases has been progressively restricted since the end of 2016. Indications as of March 2017 were that these capital controls were having the desired effect of reducing the contraction of China’s currency reserves, so that investors were being “forced to concentrate on [domestic Chinese] opportunities rather than external asset purchases (for corporations) or real estate speculation (for individuals).”
Opinions vary as to how long the intensified enforcement will remain—whether the measures present a temporary “speed bump” to Chinese real estate purchases in Puget Sound and other overseas destinations, or a longer-term impediment to such investments. Dehlan Gwo, an RSIR broker who traveled to Greater China late last year, returned with observations and insights offered by local experts there. While transferring money from Mainland China “has become increasingly difficult,” Gwo remains optimistic. “People will find alternatives,” he says. “My anecdotal observation has been that all-cash offers by Chinese are becoming less common, especially for properties at higher price-points. Because fewer funds can transfer at one time, loans for real estate purchases have increased significantly.” Reporting that banks dealing with Chinese clients continue to see good business, he adds: “I think we will see more and more creative ways to move money out of the Mainland.”
RSIR’s Asia Services Group founding broker Robert Pong agrees, reporting: “My big clients have already moved money out of China, and I am finding that clients shopping in the range of $500,000 to $2 million are having the most difficulties. This temporary challenge will be resolved in time, probably within six to twelve months. People will find a way, I am certain of that.” In any case, while the restrictions remain in place, native Chinese buyers who have already invested funds outside China will find that their real estate investments in Seattle and the Eastside have more room to run than comparable investments in San Francisco, New York, or Vancouver BC, and that those investments are better protected in the tax-advantaged environment of Washington State.
As we reported at the time of British Columbia’s enactment of the foreign buyers property transfer tax, this was a teachable moment in the public policy differences between British Columbia and other Canadian provinces, and U.S. states, Washington State in particular. In an interview discussing a possible surge of foreign capital into Seattle, City Councilmember Mike O’Brien, who is considering “things we can do to rein those market pressures in,” admitted the prospect “terrifies me a bit.” Yet the Washington State Legislature has enjoyed very few successes in past decades at enacting any kind of new tax. Levying taxes is not effected by unilateral action by the Governor’s office, the Washington State equivalent of B.C.’s Clarke government. Tax policy changes take years to change, not days. There is abundant input from voices of private citizens, to those of the Washington Realtors and the Association of Washington Business, as well as state government agencies including the Department of Revenue. Businesses and voters in Washington State have fought hard and successfully to keep our state business- and household-friendly, and free of a state income tax. Furthermore, state or local taxes imposed on the basis of foreign residency are likely to face constitutional challenges, as cross-border issues are subject to regulation by the federal government rather than by the states.
Meanwhile, among foreign homebuyers who are drawn to our state for any of these reasons, it isn’t known exactly how many have already immigrated or are in the process of immigrating, because residency is not required for property ownership. Qualifying for immigration is an arduous journey for many. The EB-5 investor immigration program has been a beacon of hope for would-be immigrants who have financial resources and would not qualify under other programs. The EB-5 program currently requires investment of US$500,000 in USCIS-designated “regional centers,” or US$1,000,000 in other locations subject to approval; but discussions are underway to raise these threshold amounts to $1.35 million and $1.8 million, respectively. The aim of the program is to promote job creation in areas with high unemployment. There are 55 regional centers in Washington State.
Changes are coming with the advent of a Donald Trump Presidency. Following the election in November 2016, Andy J. Semotiuk at Forbes speculated “that [President Trump] will make it harder for foreign students to study in the U.S. by ending subsidies and lowered in-state tuition fees for those who are currently eligible for them.” However, Trump’s stated policy goals have tended to target undocumented immigrants and refugees who have tended to avoid the income and financial resources verification requirements of more traditional immigrants, as well as investor immigrants. RSIR is following news of any emergent policies that will impact these programs.
Not standing still
Dean Jones at Realogics Sotheby’s International Realty presciently spotted a plausible shift of overseas buyers from Vancouver to Seattle long ago, as documented in Jones’ East Meet West video released in April 2015. With this foresight, as shown in the following timeline below, RSIR has been courting overseas buyers for years. Now these efforts are bearing fruit, to the benefit of our ever more culturally diverse communities and, financially, to local real property sellers and developers. In 2016, at least thirty of RSIR’s million-dollar home sales went to Chinese buyers, but even more notably, all of the firm’s top sales in Eastside neighborhoods were to inbound Chinese. At least five of these transactions recorded new benchmark values paid within those submarkets.
Events / milestones
· Jun. 9, 2008: Hainan Airlines begins service between Mainland China and Seattle
· Apr. 5, 2012: RSIR attends Hainan Rendezvous, a fashion and luxury event at Sanya, China, noting the demand for foreign direct investment
· Mar. 21, 2013: 北京遇上西雅图 (Finding Mr. Right) cinematic release
· Jun. 17, 2013: Delta launches nonstop service between Seattle and Shanghai
· Feb. 12, 2014: Canada returns nearly 60,000 applications for immigration visa program; U.S. EB-5 program surges
· Feb. 21, 2014: Joined by RSIR, Beijing Sotheby’s International Realty opens for business
· May 16-18, 2014: RSIR attends Beijing Luxury Property Show, featuring the debut of Beijing SIR, the first Mainland Chinese affiliate of Sotheby’s International Realty.
· Oct. 11, 2014: RSIR makes introduction to and then joins global affiliates for opening of Beijing Sotheby’s International Realty:
· Oct. 14, 2014: RSIR launches its Asia Desk (now Asia Services Group)
· Oct. 14, 2015: RSIR hosts Asia Real Estate Association of America’s Pacific Rim Summit at Kirkland branch office: https://www.rsir.com/blog/2014/10/rsir-hosts-2014-pacific-rim-real-estate-summit-at-connoisseurs-of-life-showroom/
· Nov. 12, 2014: U.S. President Obama and PRC President Xi agree to offer multi-entry visas and increase student visas
· Jan. 5, 2015: RSIR tapped by China Daily on the first national story about Seattle’s rise with Chinese homebuyers: https://www.rsir.com/blog/2015/01/rsir-tapped-by-china-daily-on-trends-for-chinese-nationals-buying-in-seattle/
· Feb. 21, 2015: RSIR hosts Passport to Luxury, welcoming Chinese delegations and investors
· Mar. 11, 2015: RSIR contributes to “Red Hot” – Greater Seattle Real Estate Marketing and Inbound Chinese Investment forum with Washington State China Relations Council: https://www.rsir.com/blog/2015/03/rsir-presents-to-investment-delegation-during-washington-state-china-relations-council-summit/
· Apr. 24, 2015: RSIR debuts East Meets West video featuring CEO Dean Jones
· Jun. 19, 2015: RSIR’s Dean Jones joins the board and investment committees of the Washington State China Relations Council
· Sep. 22, 2015: China’s President Xi visits Seattle; RSIR attends reception
· Dec. 4, 2015: RSIR launches its WeChat channel for bilingual content delivery and sales promotion
· Jan. 6, 2016: RSIR and Tiger Oak Media publish the inaugural edition of Seattle Luxury Living for Chinese readers
· Feb. 10, 2016: RSIR partners with Juwai.com on home search platform: https://www.rsir.com/blog/2016/02/realogics-sothebys-international-realty-partners-with-juwai-com-to-create-unparalleled-real-estate-search-portal-into-china-celebrates-lunar-new-year/
· May 8, 2016: RSIR celebrates Grand Opening of the Asia Services Center in Great Wall Mall in Kent
· Sep. 26, 2016: RSIR and Tiger Oak Media reprint “encore edition” of Seattle Luxury Living; welcome inaugural Xiamen Airlines flight to Seattle
· Aug–Sep. 2016: RSIR releases a series of articles on the Vancouver BC foreign buyer property transfer tax, beginning with “Seattle Need Not Fear Vancouver’s Phantom Towers”
· Oct. 2016: RSIR article, “Seattle: Is It Vancouver Déjà Vu?” surpasses 11,000 original page views on RSIR’s WeChat channel
· Nov. 2016: The Puget Sound Business Journal described RSIR’s attendance of Luxury Property Showcase, a leading luxury property event in Shanghai
· Dec. 4, 2016: RSIR CEO Dean Jones and broker Lili Shang are quoted in Bloomberg article “Vancouver Tax Pushes Chinese to $1 Million Seattle Homes” reporting buyers shifting from Vancouver to Seattle
· Dec. 31, 2016: China’s State Administration of Foreign Exchange on Dec. 31 announced intensifying capital controls and restrictions on offshore property investment
· Jan. 25, 2017: RSIR and Tiger Oak Media announced a 2017 edition of Seattle Luxury Living magazine, following up the success and second printing of the 2016 inaugural issue
· Feb. 7, 2017: The Wall Street Journal published “For Chinese Buyers, Seattle is the New Vancouver,” highlighting interviews with RSIR Asia Services Group brokers on this key inter-regional market shift
· Mar. 2, 2017: RSIR contributes to Forbes article, “Seattle Real Estate Sees Surge in Chinese Interest After Vancouver Enacts 15% Tax”
· RSIR contributes to CNBC in Canada “This is Vancouver Deja-Vu”, content is broadly syndicated
· Apr. 21-23, 2017: Dean Jones attends Asia Real Estate Association of America’s Global + Luxury Summit in Miami as panelist for “Making Your Market Matter”
· April 2017: RSIR co-authors book Definitive Guide to US Real Estate and attends book tour along the East Coast of the U.S.
· RSIR and Tiger Oak Media release second annual Seattle Luxury Living magazine, expand distribution to Vancouver
Jones made his first trip to China in 2012. In 2013, RSIR began to take concrete steps to introduce buyers in China to opportunities in the Pacific Northwest, and soon thereafter began launching our distinctive service platforms: our Asia Services Group in 2014; the WeChat channel and Seattle Luxury Living magazine in 2016 and 2017. Today, the Asia Services Group is home to more than a dozen brokers specialized in the language and logistics of Asian homebuyers. These platforms have improved accessibility and brought the Seattle story to life for thousands of recent and prospective buyers in local communities.
To be sure, foreign direct investment in the region is only part of the market’s meteoric rise as a global city in the making. A robust regional economy spurred in large part by a booming tech industry is transforming this Pacific Northwest gateway. Abundant jobs, a lack of a state income tax and relative affordability compared with other West Coast cities has made Seattle the preferred destination for domestic and now international real estate investments alike. As of publishing, the Seattle Metro Area boasted the fastest-growing median home prices in the U.S., according to the S&P Case-Shiller Home Price Index. Median home prices in the of Seattle have hit a record $700,000, while Eastside cities including Mercer Island and West Bellevue, popular with Chinese buyers, both crested past $1 million for median home values.
“When trying to reach a global market, working with the right broker makes all the difference in the world,” Jones declared. “After all, ‘international’ is our middle name.”
 “Immigration and Chinese HNWI 2014” (http://www.hurun.net/en/ArticleShow.aspx?nid=1502); “Immigration and Chinese HNWI 2016” (http://www.hurun.net/en/ArticleShow.aspx?nid=20886), The Hurun Report.
 “U.S. Immigrant Population by State and County,” MPI, http://www.migrationpolicy.org/programs/data-hub/charts/us-immigrant-population-state-and-county.
 Based on driver’s license transfer data from the Washington State Department of Licensing.
 Katia Dmitrieva, “Vancouver Housing Tax Pushes Chinese to $1 Million Seattle Homes,” Bloomberg, 4 December 2016.
 The same article was republished under a different title on Juwai.com in December, earning the highest number of page views in that month. (http://www.juwai.com/news/200802.htm)
 Andy J. Semotiuk, “What Trump’s Presidency Means for Illegal Immigrants and Immigration to the U.S.,” Forbes, 10 November 2016.
 Quoted by Paul Roberts in “Vancouver’s housing mess: Could it happen here?” Crosscut, 6 December 2016.
 Dimitra DeFotis, “China’s FX Currency Reserves Gain: Goodbye Foreign Real Estate?” Barron’s Emerging Markets Daily, 7 March 2017.
 Dehlan Gwo and William Hillis, “Warmly, Chinese buyers ‘survey the world beyond the seas’,” Realogics Sotheby’s International Realty, 10 February 2017.
 “British Columbia Government Charges 15 Percent to Non-Resident Foreign Buyers in Effort to Curb Skyrocketing Real Estate Prices,” RSIR blog, 3 August 2016 (https://www.rsir.com/blog/2016/08/british-columbia-government-charges-15-percent-to-non-resident-foreign-buyers-in-effort-to-curb-skyrocketing-real-estate-prices/)
 Svenja Gudell, “Why Vancouver’s New Real Estate Tax Won’t have a Big Impact on Seattle,” Zillow Research, 25 October 2016.
 Tom Trimbath, “Vancouver’s Real Estate Tax Won’t Affect Seattle, Says Zillow,” Curbed Seattle, 28 October 2016.