Some countries prohibit foreigners from owning real estate. Some countries allow foreigners to own real estate, but limit where they can own it. Some countries allow foreigners to own real estate without limitations. The United States is one of those countries that allows anyone, including foreign individuals or companies, to own real estate in any form and in any location. And the rest of the world is on a buying spree here in the USA.
According to a page one article in today’s Wall Street Journal, foreigners are snatching up prime pieces of American real estate. The investors like American real estate for several reasons: first, the stability of the political and economic environment; second, the relatively low prices on luxury residences and commercial properties; and third, the ability to “park” funds in a safe economy where there is no fear of appropriation or excessive taxation. Elida Jacobsen Justo, who oversees sales at the Mark, a hotel on New York City’s Upper East Side that is selling 9 luxury residences, put it well: “Money is always looking for a place to go.”
A recent survey by the National Association of Realtors showed that international buyers purchased $82.5 billion of residential real estate in the 12-month period ending in March, 2012. About 55% of those international buyers came from five countries: Canada, China, Mexico, India and the United Kingdom. And over half of the properties purchased by international purchasers were in just five states: Florida, California, Texas, Arizona and New York. In Manhattan, the Russians and the Ukrainians are leading the pack of foreign purchasers. In Miami, it’s the Brazilians and Venezuelans. In Arizona, it’s the Canadians, who are picking up foreclosures and hoping to rent them out at a profit.
According to the Wall Street Journal, economists say the flow of global capital into the U.S. housing market reflects several forces.
“Some Canadians, along with Brazilians and Chinese, worry that prices in their home market have gotten frothy. They are pulling some money out of that real estate market and investing in the U.S., where prices have already crashed. Some investors also believe they can earn higher returns by buying U.S. real estate, holding it as a rental, and then reselling it in the future for a profit.
“Buyers from Venezuela, Russia and Mexico are looking at trophy properties as a safe place to stash money amid perceptions of political uncertainty at home.”
In those countries where there is currently political and economic instability, or fear of future instability, the lure of parking their assets in a safe, stable investment in the United States is easy to understand. Three years ago, Miami had literally thousands off luxury condominium units up for sale. Now, the numbers are down, due to the demand from foreign investors. In California, about one-third of the luxury residential market comes from Asian investors with plenty of cash to put into America’s luxury homes.
The value of the U.S. dollar vis à vis other currencies is also a contributing factor to these investors. With the Canadian dollar almost equal in value to the U.S. dollar, Canadians can invest in second homes in warmer vacation areas for less than ever before. The recent fall in the value of the Euro to the dollar should have little effect on these foreign purchasers, since most of them do not come from Euro-currency countries.
However, I anticipate that these purchases will begin to slow when the U.S. real estate market starts picking up again, and prices start rising. At that point, the foreigners will have to choose whether to reap their profits and re-patriate their cash, or leave their investments in the US. I anticipate they will do the same thing that the Japanese did in the early 1990’s, and that is to let it ride while they can.
Here’s my usual caveat: The opinions stated in this article are solely those of the author, and should not be relied upon as a statement of fact or conclusion of law. Much of the information from today’s blog was based on the referenced Wall Street Journal article.