Foreign Investment in U.S. Real Estate: Down, but not out

New report from NAR shows inventory shortage, rising prices are impacting sales to foreign buyers 

Foreign investment in U.S. residential real estate dropped to $121 billion last year, down 21% from the year prior. In a market with tight inventory and rising home prices in the United States, the decline is not altogether surprising. In fact, given these circumstances and some uncertainty surrounding U.S. foreign policies, it could have been much lower. Foreign investors are still purchasing at the traditional levels seen in 2016 and prior, indicating that they still view the United States as a safe and lucrative investment destination.

“The saying goes that all real estate is local, but that does not mean that all buyers are,” said NAR President Elizabeth Mendenhall, a sixth-generation Realtor® from Columbia, Missouri and CEO of RE/MAX Boone Realty. “Even in this current global environment of political uncertainty, the U.S. real estate market continues to be seen as a safe, secure and profitable place to invest in property.”

The foreign buyer activity is reported in NAR’s newly released Profile of International Transactions in U.S. Residential Real Estate report, covering transactions during the 12-month period of April 2017-March 2018.

Last year’s surge ($153 billion in foreign investment) was attributed to a strengthening and safe U.S. economy, with housing prices still on the low end of most metropolitan markets around the world.

“This year’s decline is partly coming off high levels of the prior year, but also surely from the strong rhetoric coming out of Washington against foreigners,” said Lawrence Yun, NAR chief economist. “There has been a large drop-off in foreign students attending U.S. universities already. Chinese buyers, in particular, purchase homes for their kids while attending college.”

China continues to lead in purchases

Five countries accounted for nearly half (49 percent) of the dollar volume of purchases by foreign buyers: China, Canada, India, Mexico and the United Kingdom. For the sixth consecutive year, China exceeded all other countries in dollar volume of purchases, buying an estimated $30.4 billion worth of residential property, a decrease of 4 percent from last year. Buyers from Canada came in second, with $10.5 billion worth of property, showing a more significant decline of 45 percent from the 2017 survey reference period, followed by the U.K., $7.3 billion, India, $7.2 billion and Mexico, $4.2 billion.

The survey once again showed that foreign buying activity is mostly limited to three states, as Florida (19 percent), California (14 percent) and Texas (9 percent) remained the top three destinations for foreign buyers to purchase, followed by Arizona and New York (both 5 percent).

The number of units purchased by international buyers saw a slight decrease, from 284,000 in the previous 12-month period to 266,800. China, once again, purchased the greatest number of units at 40,400. Canada comes next with 27,400 units, followed by Mexico (20,200), India (13,100) and the U.K. (9,000).

International buyers still purchasing more expensive properties, more likely to pay all-cash

International buyers typically buy more expensive properties than the average existing home. The median price for a foreign buyer was $292,400, compared to the median price for all existing homes ($249,300). Chinese buyers continue to purchase the most expensive properties, with a median price of $439,100.

Foreign buyers are more likely to purchase a home with all cash than a domestic buyer. Forty-seven percent of all international transactions were reported as all cash, compared to 21 percent of existing-home sales. Buyers from India are more likely to finance their home purchase through a U.S. mortgage (78 percent). Buyers from Canada are the most likely to purchase a home through an all-cash sale (78 percent).

Education is key to working with foreign buyers 

Homes are going for top dollar, and foreign buyers typically spend more money per home than U.S. buyers. Knowing the ins and outs of working with global buyers is essential to successfully working with this lucrative buyer group. The Certified International Property Specialist designation courses will prepare you to build your global business and arm you with the network and tools to help attract international clientele. Click here for more information on the designation.

Looking to network locally? Join a Global Business Council in your area.

 

 

 

 

 

 

 

Cynthia Fauth

Cindy Fauth (RCE, AHWD, CIPS, ePRO,) is Director of Global Marketing & Business Development for the National Association of REALTORS® Commercial & Global Services team. She joined NAR in September 2009, helping real estate agents and associations "go global" by promoting the programs and tools of NAR Commercial & Global Services.

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