Should foreign investment in housing be regulated?

Foreign investment in housing

 

“Luxury real estate is the new global currency”, said John Miller, President of New York real estate appraisal firm Miller Samuel Inc. “Foreigners are putting their cash into a hard asset”. (Wolfstreet.com)

Despite the burst of the housing bubble not too long ago, foreign investors do not seem to be exercising caution these days. Potential risks such as uncertain economic and political climates, fluctuations in exchange rates and working under the constraints of foreign laws are not discouraging global investments in housing. Cross-border investments are accelerating as domestic investors are taking advantage of high returns abroad and foreign investors are capitalizing on the weakened dollar.

There are observable factors influencing the influx of foreign capital into various housing markets: economic growth or decline, low interest rates, and exchange rates to name a few. For example, while the U.S. dollar is still weaker than some foreign currencies, Americans are taking advantage of depressed housing markets that dropped in value by 40-50% during the financial crisis and have not yet fully recovered. Experts identified France, Spain Italy, Germany and Canada as markets targeted by Americans in recent years. (CNN Money) In direct response to political and economic uncertainty, countries like China and Brazil are choosing to protect their wealth by investing abroad. “Chinese investors want to protect their wealth by diversifying their assets, buying U.S. real estate and moving money out of the country”, said William Yu, Economist at the UCLA Anderson Forecast. (RealtyTrac Housing News Report, August 2015) The combination of low interest rates, a weakened dollar and increased home values and rents are attractive not only China, but other foreign investors to housing markets in the U.S.. Similarly, population growth, increased prosperity and limited housing supply is fueling home values in the United Kingdom, Hong Kong and Australia, attracting foreign buyers to those markets.
home sales to US buyers- investment in housing- MIPIM 2016

According to real estate advisors Savills, the top 5 housing markets for global investors are the United States, United Arab Emirates, Singapore, United Kingdom and Spain. (CNN Money)

The U.S. housing market is the most sought after in the world by overseas investors. While the U.S. is technically still in its recovery phase after the financial crisis, cities such as San Francisco, New York, Los Angeles and Miami are booming. Top foreign purchasers in the U.S. housing market include China, Canada, Mexico, India and the United Kingdom.

 

global investment in US housing- MIPIM 2016-

United Arab Emirates ranks second among global investors. Positive demographics and solid returns attract buyers to this market, with Dubai being the region’s major real estate center. Singapore’s slowing economy and sluggish sales in the residential market have resulted in remarkable discounts irresistible to foreign investors. Meanwhile, the two European countries on the list, United Kingdom and Spain, are desirable for very different reasons. While both countries are benefiting from low interest rates, United Kingdom is experiencing a considerable spike in home values due to limited housing supply. In contrast, Spain is still recovering from the brink of collapse, offering investors values that are 25% below its peak levels in 2008.

Though some feel that foreign investment can help foster growth in the economy, a popular opinion is that foreign investment is negatively impacting housing affordability in many cities. As an example, Chinese investment in U.S. residential real estate has grown from $50 million in 2000 to $28.6 billion as of March 2015, accounting for 4% of total home sales in a one-year period. (Realty Trac Housing News Report, August 2015)  Targeting California cities such as Alhambra, Arcadia, Irvine, Monterey Park, San Francisco and San Marino, prices in these suburbs have catapulted. On average, Chinese buyers spend $831,800 on U.S. home purchases, (paying all cash in most instances) compared to the overall U.S. average home price of $255,600. Local residents simply cannot compete and are being priced out of the housing market. Unfortunately, this growing trend is plaguing many countries. Housing affordability is becoming increasingly problematic to local homebuyers and renters alike.

“What we have seen over three decades is a rise in house prices far beyond what people can afford”, says Zoe Williams, a columnist for The Guardian. (The Guardian) She continues to argue, “75% of inner London housing is never shown on the UK market, going straight to mainly Asian investors. The solution could not be easier: we could ban the ownership of housing by foreign non-residents, as they do in Norway and Australia.”

Should foreign investment in housing be regulated or should it be free and open? Is the solution black and white or is there a gray area that can strike a balance between economic stimulation and affordability? The answers to these questions may depend on where you live.

image-3image-4

image-5

 

Image: Shutterstock

★You want to find or promote new real estate projects? Don’t wait another minute and register for MIPIM now★!

About Author

Michelle Muñiz

Michelle Muñiz is a former real estate agent licensed in Virginia. She has almost 20 years experience in residential real estate investments and property management. In 2006, Michelle opened her own property management firm focusing on military relocation. She now owns and manages property in 5 states. As a graduate student at the University of San Diego’s MSRE program, Michelle hopes to grow her knowledge in commercial real estate finance and investments to expand her portfolio to include multi-family assets.

13 Comments

  1. Avatar

    You really make it appear so easy along with your presentation but I to find this topic
    to be actually something which I feel I’d by no means understand.
    It kind of feels too complex and very vast for me. I’m looking forward on your subsequent publish, I will try to get the grasp of it!

  2. Avatar

    An intriguing discussion is worth comment. I do believe that you should publish more about this subject, it might not be a taboo matter
    but usually people do not talk about such subjects.
    To the next! Many thanks!!

  3. Avatar

    Hey! I could have sworn I’ve been to this site before but after checking through some of
    the post I realized it’s new to me. Nonetheless, I’m definitely glad I found
    it and I’ll be bookmarking and checking back often!

  4. Avatar

    I am really enjoying the theme/design of your weblog.
    Do you ever run into any web browser compatibility issues?
    A number of my blog readers have complained about my site not
    operating correctly in Explorer but looks great in Firefox.

    Do you have any suggestions to help fix this issue?

  5. Avatar

    Hey I know this is off topic but I was wondering if you
    knew of any widgets I could add to my blog that automatically tweet my newest twitter updates.
    I’ve been looking for a plug-in like this for quite some time and was hoping maybe you would have some experience with
    something like this. Please let me know if you run into anything.

    I truly enjoy reading your blog and I look forward to your new updates.

  6. Avatar

    Hi there this is kind of of off topic but I was wondering if blogs use
    WYSIWYG editors or if you have to manually code with HTML.

    I’m starting a blog soon but have no coding skills so I wanted to get
    advice from someone with experience. Any help would
    be greatly appreciated!

  7. Avatar

    It’s the best time to make some plans for the future and it’s time to be happy.
    I’ve read this post and if I could I desire to suggest you few
    interesting things or tips. Maybe you can write next articles referring to
    this article. I wish to read more things about it!

Leave A Reply