Comment: Unsafe HUA EB5 Projects

  • Introduction: Chinese investors feel safer investing in urban EB5 as opposed to rural EB5. How did this come to be? Is it a sound practice?
  • The 45 year period from 1979 to 2024 in China was historically unusual for its super fast urbanization. In 1979, 18% of the Chinese population was urban; by 2022 that percentage had skyrocketed to 65%, a change of 47%. When there is massive and rapid movement of people to cities, naturally urban property values climb dramatically, and property values in rural areas fall. The impression held by Chinese investors that urban properties are good investments is based on this historically anomalous rise of urban property values that most of the Chinese population has lived through in recent decades. The graph below shows the massive scale of this “Greatest Migration” from 1979 through 2011–a trend that continued into 2022.
  • However, urbanization in countries like Australia, the United Kingdom and the USA was much slower than that of China from 1979 to 2024 because they had already achieved a high level of urbanization by 1979. For example, during the same time period of 1979 to 2022 when urbanization in China jumped by a whopping 47%, Australian urbanization increased only 1.5%, UK by only 6% and USA by only 8% (see chart below through 2013, the basic trends continue to the present day), so urban property values in these already developed countries rose modestly and rural property values maintained their value. In America there is no difference in the risk profile between urban and rural. There are extremely high risk urban projects and extremely low risk urban projects. Likewise, there are extremely high risk rural projects and extremely low risk rural projects. Location alone is NOT a determinant of safety in US real estate investments due to the fundamentals of population statistics. Urban = safe was true in China from 1979 till 2022, but is not true in America.
  • Furthermore, during 2023, urban real estate portfolios in China went down an average of 9%, indeed there have been large failures of urban real estate companies in China such as Country Garden and Evergreen. The Chinese belief that “urban is safe” is not even true in China any more. 
  • Conclusion: For investments in the US, safety is not correlated with rural/urban location, but with other factors such as the position of the EB5 investment in the capital stack of the project - each project, whether urban or rural, should be evaluated on its own merits, and taking into account the peculiarities of each project. “Urban is safe” is a Chinese mantra which is no longer true–even in China. 
  • P.S. wait times for urban EB5 GC are much longer than for rural EB5 GC See 10 Years Waiting for HUA EB5 GC
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