Would a Gov’t Shutdown Affect Foreign Investors’ View of U.S. Real Estate?

The current stalemate in Congress over next year’s federal budget—mainly centering around funding provisions of President Obama’s healthcare law—threatens to shut down large portions of government. If an agreement isn’t reached by Tuesday, Oct. 1, then a number of federal functions, ranging from regulatory activity to issuing of visas, would halt.

How would this potential stoppage in services affect foreign individuals and companies’ views of investing in U.S. real estate? The answer depends largely on the country and the institution involved, says Jim Fetgatter, CEO of AFIRE (Association of Foreign Investors in Real Estate).

“[The shutdown] really doesn’t affect our members, which are typically larger institutional investors,” he says. According to Fetgatter, about 80 percent of AFIRE’s membership is Canadian or European in origin, with close cultural, economic and political ties to the United States. “They know a lot about our politics. I don’t think this go-round [of the debate] has risen to the level of concern.”

A major reason why this hasn’t worried them is that they saw a comparable scenario play out a couple of years ago. In 2011, a looming government shutdown caused dread in the media and the markets but fizzled in terms of its actual impact when an 11th hour deal was reached between the White House and Congress. While it’s unclear whether a similar agreement will be reached prior to Oct. 1, they are confident that some sort of accord will be struck before major long-term damage is inflicted on the U.S. economy—and beyond.

Of course, if visa and passport processing cease for any amount of time, that could put a dent in real estate investment from smaller-scale foreign buyers. And overseas institutions with less knowledge of the inner workings of the U.S. government may become wary of property purchases. But the real danger for U.S. real estate markets and the broader economy lies in a protracted dispute over funding federal programs, Fetgatter says.

“If it continued for, say, six months, which is almost impossible to imagine, then they would get concerned and might hold up on their acquisition plans,” he says. “At this point, they’re under the assumption that it’ll all work out. The U.S. is one of the few bright spots in the world economy. That outweighs the concerns they have right now.”

Brian Summerfield

Brian Summerfield is Manager of Business Development and Outreach for NAR Commercial and Global Services. He can be reached at bsummerfield@realtors.org.

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