While there are no reliable statistics about the number of overseas residents buying Palo Alto homes, it is apparent that Chinese buyers have played a meaningful role in our property market.
Over the past few years, it has become predictable that during the summer Chinese families send their kids to our local camps and along the way buy some of the high-end homes in Palo Alto and Atherton.
Why do Chinese families especially love Palo Alto? We have it all -- schools, robust economy, relatively short distance to China, weather and ethnic diversity.
It has been a longtime tradition for Chinese parents to provide the best educational opportunity for their children. These financially well-off Chinese buyers, even if themselves not well-educated, demand their kids get the best education possible. Wealthy Chinese families often travel around the world to locate the best schools for their children.
Before coming to summer camps in the Bay Area, many of these kids have attended short-term programs in the United Kingdom, Switzerland, and East Coast cities like Cambridge, Mass. and New York City. In recent years, it is not uncommon to hear comments on Palo Alto schools that we have somehow fallen behind those schools in desirable English-speaking cities, and even schools in China, on academic rigorousness.
However, those Chinese families who indeed decide to move to Palo Alto value the risk-taking attitude and the sense of responsibility that kids can develop here, which comes not only from learning at school but also from growing up in the larger Silicon Valley community.
Our robust tech economy is another strong reason why Chinese families love to move here. Many of the incoming Chinese parents are business owners who have already had some business developments in Silicon Valley. Moving here means they don't have to give up their careers entirely for the kids.
The majority of the global tech economy is located in Silicon Valley and Asia and it will likely remain so. While Asia used to provide low-cost labor, besides catching up in R&D, Asia, especially China, now also offers funding to many brilliant minds in Silicon Valley. The relatively short distance between China and Silicon Valley makes our property market more desirable than the East Coast or the United Kingdom.
What types of Chinese families are buying in Palo Alto these days? Chinese buyers can be divided mainly into two groups. The first group are investors. Those families do not have immediate plans to relocate to the Bay Area. For the purpose of asset diversification, they want to hold something here in Palo Alto to get exposure to the robust tech economy. As discussed in my previous articles, Palo Alto homes have proven to be very good investments over the long run.
For instance, the median home price in Palo Alto has increased at a compounded annual rate of 9.1 percent from 1998 to 2015, which is a lot more attractive than many other financial instruments. Using the S&P 500 index as an indicator for the general stock market, if one bought stock in the index at the beginning of 1998 and held it until the end of 2015, it only grew at about 2.1 percent annually.
The second group of Chinese buyers purchases homes as their primary residences, and most of them send their children to local schools.
What are the implications of the continuous inflow of Chinese buyers to our community? Those investment homes feed into the rental pool, and serve as a cushion to our property market. Rental properties offer a way for young families who can't afford to buy, to still live in Palo Alto. Indeed, there has been a mild increase in the rental supply recently.
For those Chinese families who do move into our community, many of them are quite resourceful. They'll bring changes to our community in many ways.
Some of them may want to tear down an old house to build a new one, thus accelerating the transition of many neighborhoods in Palo Alto. Some may contribute to our local schools financially to improve the learning experience of their children, and benefit the rest of us. Although not every newly immigrated Chinese family understands the importance of participation and contribution, I believe that over time, they will. After all, participation is what makes Palo Alto a unique and a better community.