Zillow Inc (Z), Trulia Inc (TRLA): Chinese Elixir Potent for U.S. Home Market

Well-funded entrepreneurs and wealthy individual buyers from China have been reported by WSJ Live recently as “snapping up” real estate for sale in the U.S. One of the principal reasons why more Chinese buyers are looking into U.S. properties is Beijing’s continuing efforts to cool down its overheating residential property market. The new measures that China adopted have been described as the toughest in years and included increased taxes and higher interest rates and heftier home purchase down payments in cities where excessive price gains were recorded.

The conglomerate Realogy Holdings Corp (NYSE:RLGY) is one stock play that figures well with the entry of more Chinese buyers in the U.S. real estate market. One of its subsidiaries holds the franchise for Sotheby’s International Realty, a former unit of the revered auctioneer, Sotheby’s, which has a strong network foundation in Hong Kong and China. It also holds other premium realty franchises such as Century 21 and Coldwell Banker.

Million-dollar cash purchases

A marketing VP of Sotheby’s International, Angela Wong, who is based in Los Angeles, revealed in the WSJ Live interview that sales transactions realized from Chinese buyers so far this year have grown by 15% from last year. Transactions range from $1.5 million up to $7–8 million, and 95% of the Chinese buyers pay in cash, the Sotheby’s executive added.

One impact of the acceleration of Chinese entry into the U.S. home market is further easing the downward pressure on prices exerted by distressed or foreclosed properties coming into the market. The analytics firm RealtyTrac estimated that close to 1.5 million U.S. properties are currently in one stage of foreclosure or another. The shadow inventory created by these distressed properties can dampen the present advance in home prices and discourage potential home sellers from listing their properties in the market.

Home supply at 11-year low

This isn’t happening yet, however, but only because of a rising demand complemented by foreign buyers, like the Chinese. Market supply also is currently estimated at its lowest level since Dec. 1999, an indication that the U.S. home market is further gathering steam.

Thus, online real estate marketplace Zillow Inc (NASDAQ:Z) and property search engine Trulia Inc (NYSE:TRLA) can also draw opportunities from the growing interest of Chinese property buyers on U.S. real estate, and its positive impact on the country’s home market. Trulia Inc (NYSE:TRLA) can reap additional rewards with strengthened coverage of the property market in the U.S. Zillow Inc (NASDAQ:Z), in Dec. 2012, acquired San Francisco startup HotPads, a map-based search site for rental and real estate. Zillow’s platform-building last year also included the acquisition of RentJuice and Buyfolio, an online shopping portal with mobile app.