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How foreign buyers affect US real estate market
January 13th, 2017 4:15 PM

There's no doubt that international buyers love U.S. real estate. In 2015, 15.4 percent of all commercial real estate buyers in the U.S. were from overseas, according to financial and professional services firm Jones Lang LaSalle.

 

On the residential side, the National Association of Realtors reports international buyers purchased 4 percent of existing homes sold in the U.S. in 2015, which made up 8 percent of the total dollar amount of existing homes sales for the year at $104 billion. The biggest foreign residential buyers in 2015 were from China ($28.6 billion), Canada ($11.2 billion), India ($7.9 billion), Mexico ($4.9 billion) and the U.K. ($3.8 billion), according to a study examining Chinese real estate investment conducted by the nonprofit Asia Society and real estate economics firm Rosen Consulting Group.

 

Foreign investors have long viewed U.S. real estate as a good place to diversify their portfolio and benefit from the world’s strongest economy. But in recent years, hard assets in the form of U.S. property has also become an option to safely store money. “We’ve become what is today, I guess, the largest offshore location in the world,” says Ed Mermelstein, an international real estate attorney based in New York.

 

“To be honest, Chinese buyers have been flooding this market the past few years,” says Conlan, who has been selling homes in Seattle for more than 30 years. “Some of them buy homes sight unseen, while others travel here for a kind of real estate tourism and buy real estate after only one viewing.”

 

Factors that typically influence real estate sales in most places, such as income levels and the strength of local economies, do not mean as much when large numbers of outside buyers from places such as China invade a market, says Nela Richardson, chief economist at national realty brokerage Redfin. “Local fundamentals aren’t necessarily the driving factors when that happens,” Richardson says. “That affects buyers who live in these places and can lead to locals essentially being priced out of their own markets.”

 

With so much of the world interested in holding a stake in the U.S. real estate market, any global issue has the potential to affect who enters or exits the market.

 

As an international investor with multiple U.S. properties in his portfolio, Rayat notes that some foreign buyers don’t always make decisions based only on expected returns, but rather they’re “using high-quality real estate as a Swiss bank account” to assure themselves safety and security.

 

As a result, this kind of international investment can artificially boost the U.S. real estate market, with investors more focused on gaining a foothold in the market than following property values or potential worth. “They’re paying up for properties that in some ways don’t make any economic sense – certainly not to me,” Rayat says.


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Posted by Michael Hobbs on January 13th, 2017 4:15 PMPost a Comment

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