Real estate has been, and remains, a staple in investment opportunities. The global market is becoming more and more prominent, especially with commercial properties. The US Real Estate market is an attractive option, even with obstacles like fluctuating exchange rates and tax laws.
Foreign investment currently makes up about 24% of the US real estate market due to political and economic stability, the opportunity to diversify currency with the US dollar, and more.
Anyone who has done basic research regarding the real estate market may be familiar with the 2007-2008 economic crisis, which may deter possible investors. With deeper investigation, you may be happy to know that since that darker period, the real estate market of the United States has been marked with significant growth in transaction, improved prices, and better mortgage originations.
The financial crisis from 2008 to roughly 2009 proved be an important event in the American housing sector. The crisis, mostly caused by proliferated subprime mortgages, caused many bankruptcies in the financial sector and even a recession. GDP experienced a 0.3% decline in 2008 and 3.1% decline in 2009. Real estate took a hefty hit and housing prices fell nationwide.
Since then, with the introduction of a low interest policy and economic growth, prices have grown and remained steady. In January 2018, after 9 years of recovery, national prices reached an all time high.
In terms of foreign investment, global macroeconomics and political uncertainty have led investors to seek out US Real Estate. In 2013, 7% of the total residential transactions were made by foreign investors. That is $92.2 billion of the total $1.2 trillion in purchases. The number rose to $104 billion two years later, 2.5 times more than the same figure in 2009.
One of the biggest reasons for the success of the sector is the mortgage market. The US has the largest mortgage market in the world with a balance of $8.48 trillion as of 2016.
Nationwide housing affordability has improved since real estate prices fell in 2007-2012 and GDP experienced growth after June 2009.
The commercial housing market has increased over the past decade along with the residential market. Since the last quarter of 2009, prices have nearly doubled and national office rents have risen by roughly 15%. This can be attributed by steady capital flows.
Negative interest rate policies in the EU and Japan and poor performing emerging market currencies have turned US commercial real estate into a safe haven for foreign yield-seeking investors since 2012. Foreign investment went from $22 billion dollars to $84 billion between 2012 and 2015.
After recent price growth in commercial and residential properties, there has been a slight increase in vacancies, but the price increase has begun to taper.
Buying real estate in the US can have some important tax consequences, however. Investors can be subject to the federal estate tax (FET) and the federal capital gains tax (CGT). Identifying the right investment and structuring it the right way is essential for investors abroad who are looking to invest in US real estate. The choice of the appropriate structure will depend on the cost of the property, how long the property will be held, whether the property will receive rental income, how it will be financed (mortgage or not), and if privacy is an issue. There is not one “best” structure, as the situation of each investor is specific. Alpen Partners will advise you based on your individual needs.
Overall, experts believe residential and commercial real estate remain positive. Supply remains restrained compared to demand in both residential and commercial properties, and affordability keeps buyers free of financial distress.
With all of this economic recovery, it may not surprise you to know that foreign investment in US real estate rose to 49% last year, with Canadians as leading investors and China close behind. There are many reasons why investors, foreign and domestic, are choosing US real estate. One of the leading factors buyers are looking to invest in is the economic opportunity. From creating income to capital appreciation, investors are happy with their purchases.
As stated above, international investors have really increased their interest in the US Real Estate market, increasing demand in buyers from Europe, Asia, and the Middle East. Competition has already begun to tighten in major cities in US and secondary cities that offer wealth opportunity.
The United States is also a good choice for yield appreciation hedge against riskier real estate investments in their portfolio. New York City alone produced $23.5 billion in real estate deals in 2015. For this reason, NYC has long been considered the gateway into US real estate. Also, by securing gains in the US dollar, investors are also diversifying their currency.
Compared to competing markets, like China, Brazil, and India, the United States offers a political safeguard for investors. Even though the previously mentioned economies have created great wealth, many investors are uneasy about the political systems.
Using its network in the real estate industry in North America, Alpen Partners is helping clients invest in US real estate. From luxury homes in Miami to condos in NYC and office buildings in Washington D.C., we help clients identify investment opportunities in the sector and advise them on the best structure to hold these investments.
If you’re not familiar with US taxes, the real estate market, or you’re a first time real estate buyer, it could feel like navigating without a map. Alpen Partners can point you in the right direction.
The demand for US real estate from foreign investors has never been stronger. From investors looking to diversify their portfolio to foreign nationals interested in receiving a US residency visa, there are a myriad of reasons to buy real estate in the US
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