US Property Attractive Foreign Investment

New research has shown the property in the US continues to be very attractive to overseas buyers. In fact, 2015 saw a record $91.1bn worth of real estate snapped up by foreigners; double the amount in 2014. Real Capital Analytics (RCA), a research firm based in New York, said that the momentum is expected to continue throughout 2016 as buyers acquire various property types and begin moving into secondary markets. And though some factors – politics, for example – may affect people’s buying choices, they are not likely to stem the tide completely.

Real estate firm CBRE’s head of investment research, Jeanette Rice, explained: ‘Foreign capital is still looking at the same positives in the US that they saw last year.’ America’s real estate opportunities remain a fairly attractive option for many investors, Rice added, because it’s a place to not only preserve capital but have the option to create yield too. In addition, with the US economy set to enjoy between 2.2 and 2.3 per cent GDP growth in 2016, conditions remain favourable.

One of the main sources of foreign investment in the US real estate market stems from Canada. Although the oil crisis is expected to impact the country, the appetite for housing should still remain strong as there are fewer options in Canada’s domestic market. But there are also likely to be steady flows of interest from Korea, Singapore and Europe. Riaz Cassum from mortgage banking firm HFF also believes interest from Australia and Japan is set to grow as people look outside their home country for new opportunities. Investment from China also continues, with slowing growth and a devalued Chinese RMB pushing people to seek investment further afield.

Recent changes to US regulations could also see more foreign capital flowing into real estate this year. Rice revealed that new legislation effectively makes property more affordable because tax penalties on pensions have been lifted via alterations to the US Foreign Investment in Real Property Tax Act (FIRPTA). ‘So we do expect more interest from those qualified pension funds in US real estate,’ Rice said. ‘It just has made real estate cheaper in a way due to fewer taxes.’

With a large amount of historic investment noted in gateway markets like multifamily residences in Boston, New York and Washington, there are also indications that buyers are looking to expand into secondary markets too. For example, though the three top metro areas for 2015 were the cities aforementioned, the top ten also included smaller areas like Seattle, Houston and Atlanta. Canadians have long been investing outside US gateway market, but more overseas buyers are set to follow suit during 2016.

Overall, it remains to be seen if the record $19.1bn of foreign investment from 2015 can be exceeded this year. However, the activity so far this year hasn’t slowed, indicating the significant interest is still being noted. And, despite a few economic, currency and geopolitical issues certainly set to impact a few nations, many of the same factors have actually helped drive investment upwards.