I took this photo two years ago when my solar farm client asked me to estimate land values near their facility. These were actual platted residential lots nearby, in Llano, California, with rough-graded streets and electrical transmission lines, but no water or sewer. The surprising discovery about the recent sales in this area was that the buyers were Chinese, and no one was developing the lots, paving the streets, or bringing in water or sewer. These were absentee owners. There was no particular reason to live here, anyway.
Recently I received a request from a bank to appraise an unbuilt condo at The Metropolis, LA’s most extravagant new residential tower yet, as a rental property. 1500 condominiums are being built and offered for sale for prices ranging from $600,000 to $2,000,000. Luxury residences do not generally make profitable rental properties, though, and rentals are generally an interim use before the owner makes the decision to sell or occupy.
Inquiring with Chinese-speaking Los Angeles realtors, I heard the opinion that many of the buyers at The Metropolis, being built by Greenland, a developer out of Shanghai, did not intend to occupy their units, which reminded me of a famous saying by oft-quoted New York appraiser Jonathan Miller that similar condos in New York City serve as "safe deposit boxes in the sky that buyers can put all their valuables in and rarely visit." A National Association of Realtors survey a couple of years ago even measured that the percentage of Chinese buyers purchasing such homes for primary occupancy was only 39%.
Events about a decade ago showed what can go wrong, though, when a luxury residential tower has a low rate of owner occupancy, as seen in Florida and Las Vegas. They can become "ghost towns." Has the Chinese luxury housing bubble exported itself to California and New York?