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Foreign Investment in American Real Estate

December 14, 2016editor

Your parents always told you real estate was is a great investment, investors from all over the world are following your parent’s advice. Starting after the housing crisis foreign investors bought up luxury homes in high-end real estate markets like San Francisco and New York City. Given today’s volatility in global financial markets, real estate is one of the safest investments available. U.S. real estate in particular is relatively inexpensive compared to properties in Asia.

Foreign buyers purchased $102.6 billion of residential property in the U.S. between April 2015 and March 2016, according to NAR’s annual report on international activity in U.S. real estate. The total dollar amount is down a a few percent from the year before but the total number of properties purchased, however, rose 2.8 percent to $214,885.

China Leads the Pack

The appetite for U.S. real estate continues to flourish, but foreign homebuyers are shifting from luxury to less-pricey properties due to overall higher home prices, along with a stronger U.S. dollar, which both cost foreign buyers more. There are also fewer nonresident foreigners investing in the market. Chinese purchasers continued to outpace all others, followed by Canada, India, the U.K. and Mexico. Their dollar volume of sales, at $27.3 billion, was three times as much as Canadian buyers. Chinese buyers also bought the most expensive homes at a median price of $542,084.

Cash is Boss

As a group, half of foreign homebuyers pay in cash, 65% prefer to buy a detached single-family-home, and most of them purchase in a central city or urban area. Five states made up 51% of their purchases in the year leading up to March 2016: Florida (22%), California (15%), Texas (10%), Arizona (4%) and New York (4%). Latin Americans, Europeans and Canadians, who historically favor warmer climates, were most prevalent in Florida and Arizona. Asian buyers flocked to California and New York. Texas was more a mix of buyers from Latin American, the Caribbean and Asia.

Pros and Cons

Having large amounts of money coming into the United States from foreign investors seems like a great thing. And it can be, but there is also a downside to all this foreign investment in U.S. real estate.If you already own property in areas that are now attractive to foreign investors, you’ll see foreign investment as a benefit. Your house will be worth more, but you might find that your neighborhood has a lot of vacant homes. Not all foreign investors buy residential real estate to use as a primary residence. Foreign investment can create a housing bubble in certain areas, making it difficult or practically impossible for Americans to buy a home in their own country. Likewise if you’re currently renting, you’ll probably be renting for a while longer, and rent prices will likely go up if demand increases.

The Bottom Line

Whether you like the idea of foreign investors buying up property in the United States or whether you don’t, as long as wealthy foreign buyers see the United States as a safe place to park their money, the practice will continue, bringing new money in to strengthen communities.

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