Despite all the doom and gloom in the news about the domestic real estate market, the US still remains a highly desirable destination for international investors. While US real estate has always attracted foreign buyers, recent events have pushed this interest even further.
Major reasons for this surge in interest include: the comparative weakening of the US Dollar; plentiful available inventory; lower property prices due to foreclosures; and depressed local real estate markets. Another huge factor is the potential of a gradual economic recovery in the US and a rapidly worsening situation in continental Europe.
Compared to the likes of Spain, Italy or Greece, the US has a stable and secure real estate market with much lower barriers for international buyers to enter into. American homes are also generally less expensive than their European counterparts and offer the tantalizing prospect of long-term appreciation. Foreign buyers are also well aware of the thriving rental property market.
Many countries have laws in place that make it almost impossible for non-citizens to buy land or own property. This is not the case in the US, where wealthy foreigners are welcome to invest in American real estate (there are some notable exceptions to this, as we will see below). Immigrants to the US still see home ownership as a key step in achieving the American dream; nearly 80% of foreign-born U.S. residents owned a home in 2009, according to the National Association of Realtors. Compare that to the national home ownership rate of around 67% in 2009.
What do Foreign Buyers look for in a Property?
Besides price and long-term appreciation, there are many other factors that motivate foreign buyers looking to invest in US property. Families with children studying in the US will look to purchase homes near the colleges and universities their kids are enrolled in. Foreign executives temporarily working in the US typically rent accommodation, but some execs on long-term assignments may prefer buying homes instead. On average, foreign buyers of US property tend to spend significantly more than their American counterparts. Stats from 2009 show that foreign buyers lean towards the upper end of the market, with 16 percent purchasing homes worth more than $500,000.
Where Do They Come From and Where Do They Buy?
The latest figures in 2011 show that international buyers came from 70 different countries, up from 53 countries in 2010. Unsurprisingly, most foreign buyers were Canadian – our neighbors from the North accounted for 23 percent of all foreign sales of US property in 2011. Buyers from China are second, making up 9 percent of all international sales. Mexico, India and the U.K are tied at third, with Argentina and Brazil in fourth place. Leaving out Canada, the bulk of foreign buyers come from emerging economies in Asia and South America – a trend that is set to grow in the coming years.
The four states with the heaviest concentration of overseas buyers are Florida, Arizona, California and Texas. 31 percent of all international transactions took place in Florida, the most out of any state. California is next with 12 percent, followed by Texas with 9 percent and Arizona bringing up the rear with 6 percent.
The three primary factors overseas investors look for when buying a house in the US are: proximity to their home country, climate and location, and accessibility to air transport. Generally speaking Europeans favor the East Coast, while the West Coast is popular with Asians. Mexicans tend to go for Southwestern states, while South Americans, Europeans and Canadians flock to Florida’s warmer climes.
Emerging Trends in Foreign Real Estate Investment
The U.S. continues to be a top destination for international buyers from all over the world. Foreign buyers comprising of recent immigrants, temporary visa holders and those with residency outside the US have purchased some $82 billion worth of American real estate for the period ending in March 2011 – a rise of $16 billion over the previous year.
A survey released by the National Association of Realtors, ‘The 2011 Profile of International Home Buying Activity,’ shows that 61 percent of foreign buyers purchased a single-family home while 36 percent bought a condo/apartment or townhouse. Furthermore, 62 percent of all foreign buyers paid in cash. Many analysts speculate that without foreign investment real estate markets in key areas like Miami, Florida or Phoenix Arizona would be stagnant or in decline.
Government Encouragement of Foreign Investment in US Real Estate
State and Federal legislators are not blind to the positive influence foreign investment can have in depressed real estate markets in the US. In an effort to encourage international interest in US real estate, Senators Charles Schumer (D-NY) and Mike Lee (R-UT) have introduced Visa Improvements to Stimulate International Tourism to the United States of America, or VISIT USA Act.
The bill aims to encourage foreign home ownership by offering overseas buyers and their families residential visas for buying at least $500,000 worth of real estate anywhere in the United States. The bill will also remove red tape for foreign investors and reduce the waiting time for visa applications for qualified applicants who have passed all the necessary background checks.
There are limitations to the program, however. Applicants will have to purchase their homes with cash, will not be allowed to take out home-equity loans against their properties, will not be allowed to work in the US and will not be eligible for government benefits such as Medicare, Medicaid or Social Security.
Challenges Faced by Foreign Buyers
While foreign ownership of US property has never been higher, there are still many barriers for international buyers looking to penetrate the US housing market. Getting any kind of financing is a major hurdle, as are problems with tax and immigration laws. This difficulty in finding financing is the primary reason 60 percent of international buyers pay cash for their properties. While having wealthy foreigners pay cash upfront may sound great, keep in mind that problems getting financing is also the reason 34 percent of all foreign buyers in the US are unable to complete their transactions.
Foreign buyers also have to deal with State laws that sometimes actively discourages international investment in that particular State. Oklahoma’s state constitution, for example, stipulates that non-U.S. citizens cannot own land for more than five years if they are not “bona fide residents of the state.” Being a bona fide resident of Oklahoma essentially means being a legal resident there, which is fine if you’re a non-US citizen living and working in Oklahoma thinking about buying a primary residence – but disqualifies any non-citizen from buying vacation homes or investing in rental properties.
Rules vary State by State, but the States most popular with foreign buyers (California, New York, Arizona and North Carolina) don’t have Oklahoma’s restrictive laws on foreign property ownership.
Where REALTORS Fit In
REALTORS nowadays must have a global perspective when it comes to their client base. They should have the expertise necessary to guide foreign buyers through the often byzantine process of buying a property in the US. Keep in mind that while the average US homebuyer spends about $218,000, the average international buyer will spend $315,000 – and most will pay in cash.
According to Trulia.com, San Diego is among the most popular destinations for international visitors, coming in at number 14 out of 51 US cities. The highest number of European visitors looking for properties in San Diego came from Germany, Italy and Sweden.
Foreign Investment in US Real Estate at an All-Time High