Certainly, due to the newly minted Trump Presidency, there is still much speculation as to the direction of the real estate and financial markets in 2017. That being stated, U.S. real estate continues to be a strong market for foreign investment. There are a myriad of international and domestic – U.S. – financial factors that either incentivize or discourage foreign investment interests. Detailing the specifics of these factors is beyond the scope of this writing.
However, there are two influential U.S. based components to keep in mind:
- The Fed continues to discuss potentially raising interest rates. This is further contingent on the congressional discussion regarding a possible stimulus package. Even so, Yellen has indicated an upshift in interest rates will be gradual.
- Dodd-Frank is an issue that continues to lurk in the background of legislative action. Should Congress take measures to adjust Dodd-Frank for the purpose of relaxing financial regulation, this could translate into increased lending. How this would affect international real property investments remains to be seen.
Yet, according to survey results released by the Association of Foreign Investors in Real Estate (AFIRE), 95% of foreign real estate investors intend to increase or maintain their current investment levels in 2017.
Why is the U.S. the number one choice for foreign real estate investors?
1. Stability and Security
Despite the worldwide economic slowdown, the U.S. is perpetually perceived as the most stable and secure investment market.
Indeed, respondents to AFIRE’s survey cite the strong rule of law and corporate governance as fundamental motivations to continue their U.S. investitures. This particularly holds true for those investors whose home countries are experiencing instability, or other fluctuation, in their financial markets. Summarily, the U.S. is viewed as a “safe haven” for preserving and leveraging capital.
2. Capital Appreciation Continues in Favored U.S. Cities
Real estate appreciation is projected to increase for the five U.S. cities most targeted by foreign investors: New York, Los Angeles, Boston, Seattle, and San Francisco.
As Millennials continue to merge into the home buying market, and foreign real estate investors focus on snapping up multifamily homes in major cities, the increased demand along with decreased building naturally pushes up median home prices. Given that foreign investors tend to have access to larger capital reserves for investment, it’s little wonder they are providing the positive feedback loop for capital appreciation.
As evidenced by a recent report regarding luxury apartment sales in New York hitting the breaks, there is a signal that the focus of foreign real estate investors is shifting.
3. U.S. Represents Broad Investment Opportunities
Industrial properties are edging out multifamily investments as the real estate of interest in 2017. The technology sector, including biotech, along with Trump’s focus on increasing U.S. based manufacturing are encouraging to capital expansion objectives in the industrial real estate space.
Meanwhile, foreign investors are also looking outside of the traditional metropolitan cities to outer lying areas once overlooked in the rush to acquire property post the 2007/2008 financial meltdown. Cities such as Nashville, Tennessee, and Portland, Oregon are demonstrating strong investment possibilities. A young, upwardly mobile, and well-heeled population is being drawn to both cities due to an improving job market. What does this mean for foreign investors? The likelihood of capital appreciation increases as the locals vie for property. Also, as the local industries expand, so will the need for industrial development.
Conclusively, the U.S. continues to be a reliable financial force throughout the world. Though the focus of foreign investors may shift back and forth between the types of preferred investments, their interest in U.S. property remains strong.