er
Seeking to cash in on the vast and expanding wealth accumulating in China, MSM Luxury Estates, a boutique Beverly Hills residential real estate brokerage, will open an office in Hangzhou next month.
The move, which will allow the firm to directly tap an increasing demand from Chinese nationals for L.A.-area homes, MSM joins a growing number of brokerages attempting to set up a pipeline to cash-rich buyers. Giants such as national residential real estate brokerage Coldwell Banker Real Estate and smaller operations such as Partners’ Trust in Beverly Hills have also established connections in China, though they have done so through network affiliations.
Rather than associate with an existing brokerage in China, Moe Abourched, MSM’s owner, partnered with two young American expats, David Barrantes and Cristian Munoz, who’d formed a market intelligence firm in Hangzhou, about 800 miles south of Beijing.
Abourched, who had been watching the influx of Chinese buyers of U.S. real estate – both commercial and residential – for the last several years, saw that Chinese buyers preferred to work with Chinese brokers who were recommended by friends or relatives who live in or had purchased properties in Los Angeles. At the same time, he said that many of these buyers were not satisfied with the service they received from such brokers, whom they felt did not have full command of the local market.
Since the Hangzhou office will be an extension of the Beverly Hills headquarters, he said, they can prepare the clients when they are still in China.
“The service we provide is basically a one-stop shop,” he said. “I’m doing this to make sure that people interested in buying are treated just as anybody else is treated in L.A.”
To tackle language and culture barriers, he hired a recent graduate of USC who was born in China and had just completed her master’s degree in communications. He said that he expects to hire three more international students from China next year to keep up with demand – a bold hiring plan considering that he has nine employees now.
While the concept of “one-stop shop” was that both offices would be able to communicate well, success is by no means guaranteed.
“It takes a lot of effort to work internationally,” Michael Fischer, chief operating officer of Coldwell, based in Parsippany, N.J., wrote in an email, “and those U.S. agents that have a plan for referral business and put the time in with contacts in China can make it work.”
Coldwell has 239 offices in China, but he said these offices have been primarily focused on growth within that country. While communication and cooperation between the two sides is improving, language and communication remain obstacles to developing a referral system.
“Social platforms that agents in the U.S. use to create relationships are not available in China,” Fischer said. “We use Facebook, Twitter and others, while they use WeChat, Renren and WhatsApp in Chinese.”
Partners’ Trust has a similar vision of striking deals through an affiliate network. The company established Leverage Global Partners in April with a goal to bring together boutique real estate firms around the world to share clients and listings.
It now has 75 members, 12 of which are overseas. One, Asia Pacific Properties of Hong Kong, has offices in Shanghai, Beijing and Guangzhou from which it says it serves more than 20 cities in China.
Cash in hand
Among the Chinese, who since the recession have seen the United States as a safe place to invest and buy a second home, Los Angeles has long been a favorite location in which to invest, along with New York and San Francisco.
According to a survey by the National Association of Realtors, about 53 percent of homes purchased by Chinese buyers in the last year were in California, and more than two-thirds of those were all-cash deals.
Brent Chen, a Coldwell agent in San Marino whose clients are 90 percent from mainland China, said many of them were referred by local Chinese-American brokers and not Coldwell’s China offices.
The past year, he said, was exceptionally good. He has seen the average per-square-foot price of homes in his market rise to $729 from $620, driven largely by demand from buyers from China.
He said Chinese buyers, though usually buying higher-end properties in the $2 million-$3 million range, still have their limits. They had in the past compared per-square-foot prices in the market and were careful not to go above $800.
“This year they are throwing that out of the window,” Chen said. “They are paying whatever to get the house, regardless of the cost.”
While inventories have declined and prices have been rising countywide, Chen said the heavily Chinese San Gabriel Valley market he works in has felt the change acutely. He said just eight properties for less than $4 million are listed for sale in San Marino, half the number available at the same time last year.
“It has been kind of a wild ride this year,” agreed Ellen Haberle, an economist at Redfin, an online real estate brokerage in Seattle. “We would characterize this spring as a competitive frenzy.”
Haberle said that as U.S. home prices hit bottom in 2012 foreign buyers looking for good deals flooded the market, bidding for properties with cash.
That has been especially true in Los Angeles in the past year, she said, where the percentage of all-cash purchases has been at historic highs. Last month, 39 percent of the deals in Los Angeles were all cash, compared with an average of just 11 percent from 2000 to 2006.
Rising tide
Twenty-five-year real estate veteran Abourched, who was in China last week, established MSM in 2007.
He said that he began to notice the potential in the Chinese market eight years ago, but didn’t move to enter the market because the timing wasn’t right. Since the recession, however, he knew he had to make the move – the only action in the market was being driven by Chinese buyers.
He went to China several times, looking for local partners who had the connections necessary to feed business.
He met Barrantes and Munoz, who at first were interested in consulting for him as he looked for a local partner, but as discussions continued the three opted to form their own local business, MSM Luxury Estates China.
After hiring the Chinese USC graduate, Abourched established MSM’s presence on Weibo, the Chinese equivalent of Twitter, and on Youku, the Chinese counterpart of YouTube.
He claims he has already developed a potential pool of more than 100 clients looking for properties ranging in price from $1 million to $10 million. (Listings on MSM’s website range from $380,000 to $6 million.) He said he recently brought three clients to Los Angeles to see listings.
He doesn’t charge Chinese clients fees for representation. His compensation comes through traditional brokerage commissions. But the costs associated with cultivating clients in China are greater than those for buyers looking to move a mile or two away from their present homes.
To that end, Abourched is spending some of his time in Shanghai trying to strike a deal with a Chinese travel agency so that he can make sure when clients need to come to Los Angeles he can quickly sort out everything for them.
“I will arrange everything in Los Angeles,” he said. “I’ll suggest to them where to eat (and) a couple of days of fun and leisure so they will have a more comfortable feeling of where they are buying.”
