United States Real Estate Attracts International Investors
Money tends to go where money is, and that means the United States’ commercial and even residential real estate market is attracting the eye of international investors as well. While much of the public is concerned about manufacturing heading overseas, most are unaware just how much business is headed the other direction. With changes in policies of other countries and incentives and policy changes in the United States, we can continue to attract global capital that will bolster our real estate investment market, create jobs and grow our economy.
In the July 2, 2105 Newsweek article, “China is Eager to Invest Trillions Abroad. Is the World Ready?” it is noted that China, “just became the largest foreign purchasers of residential property in the United States, accounting for 16 percent of all foreign purchases.” The article explains that part of that reason is the housing slump being experienced in China. Even the current regulations that keep them from sending money out of the country which result in hefty fees has not been enough to keep them from moving their money to the United States. Furthermore, since China is now easing those restrictions, it is likely we’ll continue to see even more increases in future years.
It isn’t just Chinese investors that are interested in purchasing real estate in the United States, although they are one of the two largest. Investors from other countries are also jumping on residential properties. Canadians have long had interest in residential properties here, in part due to our close proximity but also because housing there is considered overvalued by some investors. Although there was once a huge influx of Germans buying homes here, that has tapered off in recent years. The numbers continue to rise each year but at a slower rate than in the past. The interest from Swedes has doubled in recent years, perhaps because of their stagnant economy. Investors from Australia, the United Kingdom, Italy, France, Switzerland and United Arab Emirates complete the list of the ten most active, per an article in the USA Today . There are in the range of 50 other countries that have investors attracted to United States real estate as well.
Contributing Factor – FIRPTA
Obviously economic conditions in other countries plays a big part in why global investors are heading to the United States with their investment funds. But, changes in US policy, particularly the new FIRPTA rules, could play an even bigger part, particularly in the commercial real estate investment industry.
According to an article by Randyl Drummer on January 13, 2016 in CoStar, which quoted Ken Rosen, a professor of economics and chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, “Initial estimates suggest the new FIRPTA changes will generate $20 to $30 billion in investments in U.S. commercial real estate in 2016.” While these changes mostly affect foreign pension funds rather than individual investors, it is still good news for the real estate industry and our nation’s economy. As other foreign funds consider the new rules, we could see even more activity.
Favorable Business Atmosphere
It is not just that global investors are attracted to the real estate itself. They are also finding there are other reasons for investing in the United States, such as for its business opportunities. With political stability and a stronger economy than most of the world, as well as a host of other opportunities including government incentives, many are moving here or at least opening subsidiaries. Along with that comes the need for real estate to house those endeavors.
Companies in many countries around the globe even go so far as to provide guides for people considering investing in the United States. For example, KPMG in the Netherlands put together an 84-page guide entitled, “Investing in the United States, A Guide for International Companies.” This guide discusses the opportunities and challenges, how to invest, the types of entities, dealing with taxation and reporting, labor laws and policies, banking, importing and exporting products and other legal considerations. This is just one guide of the many out there that make it easy for a foreign investor to better understand the path to owning United States real estate and/or operating a business.
How a Foreigner Can Invest in Commercial Real Estate
Foreign investors face many of the same decisions about how to invest in commercial real estate as domestic investors do. For example, they can develop a portfolio of individual properties or invest in commercial real estate funds. They have the added burden, however, created by being many miles and perhaps time zones away. This makes all aspects including selection, negotiation, purchase and management of individual properties far more complicated. Without plenty of travel back and forth and/or a strong support team in place, this would be practically impossible.
It is for this reason, many are choosing to invest in funds, such as commercial real estate funds and real estate mortgage funds. Distance is of very little concern this way, other than an occasional phone call that needs to be accomplished keeping in mind the time change and perhaps the services of an interpreter. A further benefit of investing in a fund is that profits can be reinvested back into the fund eliminating the constant need to transfer and thus convert currency. This can be a tax advantage as well.
Capital being infused into our residential and commercial real estate industry has many benefits for America. It will continue to bolster the recovery of this industry and provide for a good upsurge which is completely different than the bubble-era fiasco from before. Foreign investors are not relying on huge debt to make investments as was the case back then, so even if a downturn were to occur, albeit unlikely, there won’t be the bankruptcy and collapse issues we saw before. This marks a new journey into structured and sustainable growth that our country needs.
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