Foreign real estate investors calculate their return
As signs that the second wave of COVID-19 begins to subside and travel restrictions ease, foreign investors are looking to return to the United States, which could push home prices up in an already market. record.
From a MarketWatch article by Jacob Passy, foreign investment is at its lowest for 10 years.
“These travel bans have not only hurt the hospitality industry, they have also resulted in a significant drop in international investment in US real estate,” Passy said. “International buyers only purchased 107,000 residential properties in the United States between April 2020 and March 2021, a decrease of 31% from the previous year, data shows published in July by the National Association of Realtors. This was the lowest level of foreign investment in a decade.
It is not only travel bans that restrict foreign investment, but reinforcements at consulates and embassies have limited the number of visas issued. Additionally, foreign investors are less likely to buy properties blind, unlike many Americans during the pandemic who bought properties digitally with the rise of video tours and 3D technology.
“They are used to touching and feeling their investments because for them the United States is their safety net,” said Edouard Mermelstein, Founder of One and only credit, a New York-based advisory firm for high net worth investors. “For them not being able to watch and experience everything they put their money into is a psychological problem.”
According to Auction.com, the share of purchases by foreign buyers fell from 12% in the first quarter of 2020 to only 8% in the first quarter of 2021.
The slowdown was particularly marked among major buyers of US real estate. China, Canada and Mexico rank among the biggest buyers of US homes and condos, but the dollar volume of investments from those countries has fallen by 50% or more this year.
The east and west coast markets will benefit the most from the return of foreign investment, depending on past investment.
“For the past 13 years, Florida has been the number one destination for foreign buyers, accounting for 21% of international purchases,” said Passy. “In 2021, California came in second with 16%, followed by Texas (9%) and Arizona (5%), followed closely by New Jersey and New York with 4%. Where foreign money is flowing now that travel is easier, house prices will likely increase. “
The travel ban likely contributed to easing demand from foreign buyers for US real estate, but it did little to slow the rapid rebound in the US real estate market in the second half of 2020 and so far in 2021 “, said Daren Blomquist, Vice President of Market Economics at Auction.com. “Adding demand from foreign buyers to the mix will likely only add more fuel to the already hot housing market fire.”
While cities like Los Angeles, Miami, New York and San Francisco have traditionally seen the most foreign investment in the past due to their strong real estate markets, Blomquist said he predicts more money could be headed towards single-family dwellings which have seen significant growth since the start of the pandemic.
“I would not be surprised to see the investment thesis of foreign investors move to more affordable and less dense domestic housing markets given the pandemic accelerated transition to these types of markets and away from more housing markets. expensive and denser on the coasts, ”said Blomquist.