Domestic home ownership dropped to its lowest level in 46 years in the US this August. A shortage of affordable listings, tighter credit conditions and rising land costs have pushed the average family out of the market, with increasing numbers resorting to renting rather than buying.
Investment in multi-family units reached $127bn (£83.7bn) in June, a record figure that is over three times its 2014 equivalent. The previous record was $100bn in 2006, and CBRE Global Capital Market has described the demand for new apartments in the states as ‘unrelenting’. The fact is that the demand for residential property in the US, especially in the upper end of the market, is driven by money from overseas. Property sales to foreign buyers jumped from $68bn in 2013 to $104bn in 2015.
New York’s West 57th Street is known as Billionaire’s Row; however, many of its luxury skyscraper apartments are empty for most of the year because foreigners buy them as second homes or investment properties. Rich native New Yorkers live on nearby West 59th and the difference between the two streets is massive, according to local real estate executives. They say that foreign buyers have largely driven the steady rise in residential property prices in the city over the past few years coming from Asia, South America and the Middle East.
In a world where financial markets and economies remain unstable and interest rates are at a record low, residential property is more popular than ever as an investment asset. The ultra-rich are putting their savings into luxury real estate in gateway or haven cities, where residential property is seen as a safe bet. Several years ago, such investments were seen as clunky or illiquid but now this has changed, especially in cities such as New York where capital appreciation is a near certainty.
‘If you put money in the bank in Germany, you’re getting negative interest,’ says Stephen Shapiro from JLL’s New York Capital Markets Group. ‘You can buy an apartment in Manhattan and get exponentially higher returns. It has caused all this money to flow into New York.’
$28.6bn worth of real estate sales this year went to Chinese buyers, where the easing of capital flow restrictions and economic instability at home has done much to encourage the wealthy Chinese to look at investing in property abroad. A survey by Barclays carried out in September last year suggested that nearly 50% of high-net worth individuals in China were considering moving to a more developed country within the next five years.
With prices in Hong Kong and Singapore soaring over the past decade, New York, Vancouver, Sydney, Tokyo and London are all high on the shopping list of rich Chinese property buyers. Cushman & Wakefield reported in August that the ‘flood tide’ of Chinese capital was poised to change skylines around the world and that the flow of capital was expected to continue at a rapid pace, with further blockbuster deals to come.