United States

What are the effects of foreign investment on US real estate?

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A recent report by the National Association of REALTORS (NAR) reveals that foreign investors play a significant role in the ongoing US housing stock and affordability crisis.

According to the report, between April 2021 and March 2022, foreign investors primarily from China and Canada spent $59 billion on residential properties in the US, an increase of 8.5% over the previous year and ending a three-year downturn. Of those transactions, 44% were all-cash sales.

All-cash bids are a major incentive to sellers because they take the financing process out of the equation, resulting in quicker closings. Most US buyers can’t offer cash – as it is, the National Association of Home Builders estimates 69% of all US households can’t afford the 2022 median new home price – which pushes them further down the waitlist.

While certainly not the sole cause, foreign investment also could have contributed to soaring domestic house prices. NAR reported never-before-seen average and median purchase prices ($598,200 and $366,100, respectively) among international buyers in the above time frame. It’s well documented that neighborhood comparisons can affect a property’s value. So, it’s possible that house prices within or adjacent to zip codes with a wealth of foreign investors have and will be affected in the same way.

Canada, itself the target of foreign residential property investors, has already pinned the blame for its runaway home prices on this trend. Last April, Prime Minister Justin Trudeau announced a two-year ban on foreign real estate investors. While some industry experts are accusing Trudeau of scapegoating, might the US be tempted to follow the lead of our neighbor to the north?

Signs currently point to “no”, as one city in Florida – the number one destination for foreign buyers for 14 consecutive years, according to NAR – welcomes international investors with open arms.

Droves of Colombian investors are moving their capital and families to Miami following the inauguration of their country’s new president and plans to raise taxes on the wealthy. They’re purchasing residential properties not only for their own use, but also to flip into duplexes or apartments, taking the edge off of the housing shortage in South Florida.

Whether or not foreign investors directly contributed to the US housing affordability crisis, owners and property managers may face increased challenges and competition from their infiltration. However, newcomers to the market will need help from local property managers to navigate US laws, regulations, and customs. It could be profitable to answer their call for industry expertise.

More foreign investment headlines

Don’t ban Chinese investment in US farmland – Bloomberg

Dallas considers restrictions on real estate investors – The Real Deal

Real-estate brokers brace for ‘flood’ of wealthy buyers from overseas as travel restrictions lift – CNBC

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