Arcasia: "An influx of immigrant wealth has turned a Los Angeles suburb into the Chinese Beverly Hills”

Mod: The following is an excerpt from an article published by a magazine called "The World of Chinese." Headquartered in Beijing and in existence for well over 100 years, the publication describes itself this way: "The World of Chinese is a bi-monthly English magazine and web portal dedicated to Chinese language and culture." The highlighted topic here is corrupt real estate and development practices in Arcadia. The person who forwarded me the article included this description: "Finally a story about something we've always known. Arcadia will implode and we have the dishonest Chinese realtors and developers to thank for that. Arcadia is slowly becoming an AirBnB McMansion dumping ground." Read on.

Arcasia (The World of Chineselink): Mei Zheng, a realtor from Beijing, has lived in Arcadia since 1994. Her son recently graduated from AHS, but Zheng worries about the effect that education migrants have on property values: Because public schools are typically free for students in their attendance area, some parents purchase property solely for their child’s school years.

In 2012, Zheng sold 17 homes in LA County; in 2016, she sold eight. “What happens when kids from a Chinese family graduate from Arcadia?” she asks. “Who’s going to replace those outgoing Chinese families?”

Arcadia has ridden out previous housing bubbles. In 2008 when the market crashed and many sub-prime mortgage owners found themselves without a home, Chinese realtors carried on, as they still had the best leads.

“The character of the city has changed,” says Ronnie Sky, a realtor in his mid-50s who first moved to the area in 1986. “The demographics have gone from that of a middle-income community to an international community with the main influence being Chinese.”

Sky names several reasons for the exclusion of non-Chinese realtors, including language and cultural issues, but thinks the real reason is the kickback, known as the ‘red envelope.’” This is when a homeowner receives a percentage of the realtor’s sales commission as a hiring incentive (realtors generally make 3 to 2.5 percent, and a red envelope is around one percent).

Kickbacks on property sales are illegal in both the US and China, but those in the profession say that it happens more often than not, especially among Chinese realtors. This practice is hard to prove, but if caught, a realtor can lose their license.

“We call these types of people ‘rats,’ and every company has a few,” Zheng says. “There are people who don’t care about damaging reputations by being dishonest.” Kickback culture has hurt her business too: “It’s difficult to get listings when you are competing with realtors who agree to some form of kickback condition.”

Some believe Arcadia’s property market may have already peaked, at least temporarily—home purchases in cash, associated with Chinese buyers who prefer to pay in full, are down overall, from 461 in 2014 to 344 in 2016, while cash sales in the San Gabriel Valley and LA County have declined 17 and 12 percent respectively in the same period.

The slowdown is blamed on tightening capital controls back home. Chinese policymakers, alarmed over the outflow of their foreign exchange reserves—down by 1 trillion USD in two years—had already begun restricting capital flight to 50,000 USD a year (a limit that most could nonetheless circumvent by using connections to create multiple quotas, a process compared to “ants moving rice” by one realtor).

Since 2015, the screws have tightened considerably: customers at China’s State Administration of Foreign Exchange must now provide details of how their funds will be used, and promise not to invest in property overseas or convert currency for others.

These policies have reverberated to the San Gabriel Valley, where much of this money was being parked; even so, the previous years of boom are evident in the physical and economic transformation of Arcadia. According to one city website, the average price of a family home in Arcadia in 2000 was $372,000 USD. In 2013 it was $802,400 USD. Right now, prices range anywhere between $500,000 to $12 million USD. But it wasn’t just the economics of the housing boom that had some residents concerned.

David Arvizu and his neighbor April Verlato, a local attorney who now sits on the city’s ruling five-member city council board started a coalition called Saving Arcadia, which has about 20 core members, half of whom are Chinese.

The problem, according to the coalition, was that major construction projects in the community were tearing down smaller homes and replacing them with larger, lavish “McMansions”—multi-story faux European villas, replete with chandeliers, marble floors, and garish fittings. Reportedly, many of the city’s compact ranch-style homes, built in the 1940s, did not find favor with new Chinese buyers.

In 2014, Arcadia received 165 requests for home development projects; neighboring Monrovia, which prohibits teardowns on homes built before 1940, had only 20.

Two years ago in south Arcadia, the Neighbors of Hollis Lane, a 50-strong group, protested a Chinese investment company over plans to build an oversized property on one of their lots; local media reported the company attempted to bribe residents to drop their objections.

The opposition was not just about aesthetics—many were concerned that investment properties blight the community. “We ended up with a bunch of homes purchased with no one living in them,” Arcadia’s then-mayor Mickey Segal told the LA Times.

Mod: The entire article is available by clicking on the link provided above. You oughta check it out.

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