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Are Foreign Buyers the Only Healthy Sector of Real Estate Buyers?

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I’m in court all this week, so blogging can’t help but be light. But I did want to pass on an interesting conversation I had last night with a friend who is a Wall Street guy and a sharp reader of the economic scene.

I asked him whether inflation expectations were influencing people with money (like him) to buy real estate, a theory of mine that I wrote about over at 7DS. His answer surprised me.

He thought that inflation wasn’t the reason for the increase in cash buyers, but that foreign money seeking safe haven was. His view is that with the dollar getting more or less devalued by our Federal government policies, foreign buyers are finding bargains to be had in the United States.  This MarketWatch story more or less matches up with that idea.

But the reason was fascinating. These wealthy foreigners are basically more aware of political risk in their home countries than they are economic risk of the U.S. market (in his view).  For example, a Chinese businessman who has made millions from exports to the U.S. doesn’t want to repatriate those dollars back to China and entrust the money to the Chinese banking system (and no sane person would, he thought). So rather than bringing those profits home, the Chinese businessman just buys real estate in the U.S. to park the money here.

For example, he knows a custom builder in the Millburn area. Said builder put up five houses, all over $2M in price. One Chinese buyer bought three of them, in cash.

Apparently, the same goes for Europeans and South Americans. A lot of the rich are worried about political and fiscal situation in their home countries, and are seeking safety. They’re buying gold, commodities, etc. and American real estate.

This is one guy’s opinion, of course, but it’s interesting. Is there anything like this going on in your markets?

-rsh

 

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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called “a revolutionary in a really nice suit”, people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

10 COMMENTS

  1. We rarely if ever see foreign buyers in our market, a small mountain town 2 hours east of Seattle. I would say that even out of state buyers are fairly rare.  This year however, we have seen a huge increase in cash deals. I think 75% of of our transactions in the first quarter were non-financed.

  2. Had a closing in our Clarendon Hills, IL office a couple of weeks ago.  A Chinese investor bought a potential 7 lot infill project – about $1MM.  This same investor is buying up rental units in Chicago as well – deploying a lot of capital for the reasons you mention (my understanding).

    In the markets we cover, foreign investors are not the only buyers.  The other day, I personally had a listing (for teardown) in Western Springs, IL.  Within 24 hours, we had four offers – all at or above list price.  Two contracts from individuals wanting to build themselves a new home and two builder’s looking to build on spec for their own account.  The winning bid offered “$5,000 more than your highest offer”.

    In the little world I cover, supply is a big issue – the demand is there (all cash).

    Thanks

  3. Rob, international buyers are definitely an important part of the real estate buying community right now. The National Association of Realtors reported that between April 2009 and March 2010, 7% of the total U.S. residential market–$66 billion worth of property–was sold to foreign nationals, recent immigrants and temporary visa holders. On Realtor.com, traffic from countries in Wester Europe, the Middle East, South America, and Asia has increased by more than 50% over the past two years.  Foreign buyers seem most interested in looking for property in Florida, California, Arizona, Texas, Georgia, New York and Nevada.

    • Hi Jill – Thanks for that! Interesting traffic increase reports… How do they even find out about Realtor.com? Figure they just go to Google.com for the US real estate markets and go from there?  Do you guys do any marketing/promotion in international markets?

      As for the NAR report… I looked at it, and was a bit… meh… in that the data comes from surveys of REALTORS rather than something a bit more objective (like MLS sold data). It’s still illuminating, but would be great to get something a little more concrete.

  4. In S. California I have seen more foreign investment in the past 6-8 months, however the overwhelming majority of cash buyers are flippers.  They are scooping up the REO inventory and turning them around pretty fast.  Of the 10 REO listings I have sold this year, 7 were bought by US investors with plans to rehab and flip.

    • So these flips… who’s buying them? I get the investors/flippers buying the REO and rehabbing, but who’s buying the rehabbed houses?  And wouldn’t it be safe to say that if there is demand at the price point of the rehabbed flips, that’s the actual price level of the non-REO housing as well?

      • Mostly first time buyers are picking up the flips after rehab Rob.  And yes…once rehabbed these homes are at “market” price.  I’d say half the buyers are using FHA and/or Homepath/Homesteps loan programs which offer some incentives like low down payment, no appraisal fees, closing costs assistance, etc.  The other half are coming in with 20% down. 

  5. I think your friend is spot on! While the great USA has its problems, it’s still one of the safest places to invest your money. We have a stable society, a productive society and a very stable government. And over the long-term, our economy is stable, especially so when compared to other countries about our globe.

  6. Orlando is seeing investors drop money like crazy. We are having foreigners specifically in great quantities from United Kingdom, Canada, South Africa. It’s an excellent time to refocus the business and take advantage of this trend. Vacation property builders pay higher commissions.

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