Chinese investors are adding to their appetite for contemporary art and fine wine with the billions –trillions?–that have been created over the recent past. While the real estate market on mainland China may be overbuilt and un-occupied, media reports suggest that Chinese investors are placing a big bet on the Motor City.
That’s right: Detroit real estate is the supposed target of Chinese investment. The Chinese, known for their superstitions and love for gambling, are less interested in the casinos across the Detroit River in Windsor, Ontario. No, they want downtown, MoTown. Home to MoTown records, the Funk Brothers, and the US auto industry.
Now working through a bankruptcy and besieged over the recent past by political scandal, financial difficulties during the Great Recession, and the toughest challenges EVER to face the US auto industry, Detroit may be turning the corner. Or, at least that’s what some speculators may believe. And they are putting their money where their mouths are.
Why would anyone want to invest in Detroit now?
Consider:
- Vulture investing is always in vogue. Buying at the bottom, or the perceived bottom, is attractive to so called “vulture” investors who see the glass as half full. Someone is always looking for a bargain and many contrarian investors take great pride, and hubris, in finding a steal when the crowd is running the other way. Is Detroit a diamond in the rough?
- Real estate is on the way back. We’ve come a long way from the Great Recession. The US has survived, and so has the US dollar, our financial system, and our stock market (more on that in a moment). Real estate has, too. Witness the comeback of one the hardest hit real estate markets in the country during the big meltdown: Florida. Florida is building again, as construction cranes dot the skyline, developers are stepping up and making proposals for new projects, and prices are rising. They have been steadily over the last four years.
- The US Dollar Is Strong-and so is the dirt. In Miami, a lot of the excess inventory from the over-building of the last decade was scooped up by foreign investors who saw a safe haven in US dirt. Should Detroit, a major US city, be any different? Our dollar is strong, and many believe our dirt is, as well.
- Inflation Hedge. What is inflation you ask? Well for those who are have been around to experience the ’70’s, they know what inflation is. Real estate can be a good hedge, even though most don’t believe inflation to be a serious threat in the immediate future. But, some say, there will come a time when inflaction roars back and many will ask “Why didn’t we buy real estate when the prices were so low?”
- Diversification. The number one (?) rule of prudent investing is diversification, right? Well, the Chinese have taken interests in wineries, and set the contemporary art market on fire. Why not US real estate, right? But they are probably not alone, just perhaps ahead of the game. With the US stock market on fire, and valuations for publicly traded companies above the 10 year average, soon Wall Street and other shrewd investors will be looking for a new asset class to place their money in. Enter real estate. Whether the Chinese are right about US real estate is one question. Whether putting their investment eggs in Detroit’s basket and downtown, is the more interesting question.