International Investing Changes the Real Estate Landscape

Foreign investments in US real estate rose sharply in 2012, increasing 24 percent just since the previous year. That translates to about $16 billion worth of purchases in single-family homes alone. And while this influx of purchasing power from outside the country may pump life into the still-fragile US housing market, it also raises concerns about loss of opportunities for local independent investors and raises fears of increasing foreign control over the housing market as a whole.

Foreign investors are flocking to buy properties in the US for many of the same reasons that make the market so attractive to local investors. Mortgage interest rates are lower than ever, a number of low-cost properties are available for sale, and tax laws favor property owners with an array of deductions and credits.

The motivations of these foreign buyers differ, though. Many, from countries with relatively unstable governments, seek US real estate as a haven for their savings. Some simply want a residence in the country for a vacation home or for children attending US schools. Others look to commercial real estate, such as apartment complexes or office parks, strictly as a business endeavor. A study conducted by the National Notary Association found that the largest percentage of foreign investment since 2010 was devoted to commercial properties, purchased not by individuals but by investment groups from a variety of countries.

Who are these international investors? Not too surprisingly, two of the top three investors in US properties are our nearest neighbors – Canadians and Mexicans. Rounding out this trio are the Chinese, who have surged to the forefront of US property investing with an aggressive push into the market since early 2011. These groups have staked out specific areas of interest: many Canadian investors are choosing properties in Florida, for example, while Chinese buyers focus on West Coast cities such as Los Angeles, and Mexicans tend to buy in Texas and other border states. Investment money also flows in from the nouveau riche of Russia and the Czech Republic, as well as the upper middle classes of France, Spain and India.

Generally speaking, these investors must go through the same process required of

local buyers. But many are able to pay cash for the property – a buying advantage that trumps the small investor who must arrange for a mortgage loan and down payments. Some properties are also sold directly by lenders to foreign investors, particularly bulk lots of foreclosures to be used as rentals, bypassing individual listings that independent investors can access. On the other hand, since foreign investors seeking income tend to focus on multi-unit and commercial properties, the market for single-family homes and small multiplexes remains relatively competitive.

The influx of foreign funds and enterprises adds money and, in some cases, jobs, to the US economy. Investment purchases require the help of real estate professionals, financial institutions, and even property managers. Ongoing property maintenance also requires the work of contractors and other services. And, US properties are subject to US taxation, regardless of ownership.

As Jason Hartman has said for years, US property is the most desirable in the world, thanks to current conditions. That means foreign investment is here to stay, offering a needed boost to the housing industry

and channeling funds toward a variety of local enterprises as well.

The American Monetary Association Team

 

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