As a first-generation Asian-American immigrant, the duality of Eastern and Western culture is a part of everyday life. There are holidays and traditions on both sides that we end up celebrating; home-cooked meals that cater to multiple styles of cooking; plurality in spoken languages; subconscious biases and expectations of our roles from society. Granted, I’m hardly unique in my experience—plenty of books and movies and even standup comedy draw from the same well.
One fascinating area of overlapping culture is the attitude toward real estate. Both value residential housing as a powerful way to build wealth, but how that value is derived is a product of the different economic circumstances and available opportunities. Simply put, Asians place higher importance on securing home ownership, and this delta in value intensity can show up in a myriad of places: like the absurdly high cost of living in some Asian cities relative to income, or the prevalence of foreign home buyers in a select number of North American cities1.
The Western school of thought—one that I’ve grown up with and largely agree with—is that real estate is an important part of an investment portfolio. Some characterize the action of buying a house and paying off a mortgage as a form of forced savings; you can always downgrade later, draw a home equity line from the property, or even take out a reverse mortgage to fund retirement. Several rules of thumb advise how much mortgage is reasonable as a percentage of income2, with the implicit assumption that the rest of your paychecks need to go towards retirement savings accounts, equity investments, and general living expenses. Homes-as-investments also have to account for maintenance and holding costs: property taxes, repairs, home insurance, etc. that factor into the overall cost of ownership, to the point that some opt to permanently rent than incur the costs and headaches of home ownership.
The Eastern school of thought sees housing as almost a milestone into adulthood. In China, bachelor eligibility is partially scored by the ability to own a house, and it’s a requirement that overzealous parents seriously demand of their children’s courtships. If there’s a suggestion on how much mortgage is sustainable, the answer is something close to “as long as it’s slightly less than your monthly takehome,” where the expectation is that many things can be sacrificed to secure home ownership. In Japan, some mortgages are taken over an unusually long amount of time, such that it gets passed on from one generation to the next, and homes also house multiple generations of family3.
There is a confluence of factors that explain this difference in attitude:
- Home prices have generally only gone up, ever since people have been able to own real estate properties. In dense cities like Hong Kong and Singapore, the lack of buildable land and the sheer population density combine for persistent demand4.
- Taxes policies incentivize behaviors. In some Asian countries, property taxes are low or don’t exist, which reduces holding costs. In the US and a couple of other Western countries, the combination of mortgage interest deduction and high loan-to-value mortgage arrangements5 combine for attractive leveraged bets on housing as investment vehicles.
- Labor is generally cheaper in Asian countries, which lowers maintenance costs.
- There are scant other investment mechanisms for most of the population; the Asian stock markets are less mature than the New York and London exchanges, and other investment vehicles like CDs and bonds are less popular in Asian countries.
The drive to own property is so rooted in Asian cultures that when people come into wealth and take on more sophisticated financial planning, the instinct is to diversify—not in asset class, but in geography, as in, buying homes overseas.
Immigrants like my parents harbored the same attitude from the old country even as they tried to assimilate the culture in their new environment. Presented with the diversity of available investment vehicles in America, they’re still most comfortable with hard assets that they can gauge in person, with real estate being the premier asset class. The drive is still first to own your own house, and then strategically expand to rental properties. And there is something attractive about deriving income as an immigrant landlord: whereas equity portfolios are beholden to vicissitudes of the stock market6, rental properties generate steady cash flow where costs can be manually contained, via doing some of the repairs themselves in lieu of hiring costly handymen. The style of real estate investment is pretty much the opposite of passive income, whose returns are proportional to the hassle of constant maintenance and upkeep.
Indeed, what I’m describing here is just a profile of an average, hands-on landlord, regardless of ethnic background. But just as there’s some truth to the stereotype of Asians striving for medical and engineering careers, there’s real status ascribed in the culture for home ownership—further amplified by its implications of wealth and its attributions to social identity.
To the point that Canada straight up banned foreign home sales for 2 years in hopes of stabilizing real estate prices.↩
Unfortunately, with the recent run-up in real estate prices, those rules now seem outdated and unrealistic.↩
Japan has an interesting wrinkle in their housing market, in that the land holds the vast majority of the value and the physical building depreciates over time.↩
This is why the recent reports of a Chinese housing bubble are so scary; the country hasn’t experienced a major housing downturn in the modern era.↩
I.e., low down payments, more money borrowed.↩
And for the past 2 years, the Fed’s interest rate policies.↩
