Foreign Investments in U.S. Real Estate Post-2008

Over the past 8 years they have been proved correct. While in some parts of the U.S. the housing market has struggled, New York has seen steady growth, with huge price gains since 2013. Downtown New York has seen the highest gains, but the rest of NYC is not far behind. $87.3 billion worth of foreign investment deals were completed in 2015, compared to just $5 billion in 2009. Manhattan properties alone took 27% of that number.

 

Many see the current situation as a housing boom. But with a boom comes concerns that a new housing bubble is forming. How did we get here, and are we setting ourselves up for another collapse?

 

Foreign investment post-2008

 

Much of the enormous growth in real estate can be attributed to foreign investors. In the wake of the housing crisis, New York housing prices were at a nadir. Astute investors who foresaw the end of the crisis were quick to pounce, buying real estate at bargain rates.

 

Buyer profiles

 

China currently leads foreign investment in New York housing. Canada held this position for some time, but the weakness of the Canadian dollar has bucked the trend to a small degree. Investors from Brazil are ramping up interest, with the need to protect their assets from their own country’s crisis. 

 

The USA is slowly becoming a major destination for British investors, or at least it used to be pre-Brexit which made USA expenses 15% more expensive at the current rates. The Telegraph has reported a 12pc annual yield on buy-to-let houses in certain areas. That is after-cost figure, a staggering number in comparison to less than 5% in London (and lower than that in Swindon according to this research). 

 

The numbers can be deceiving, though. Despite the huge amount of foreign investment coming into U.S. real estate, it comprises just 4% of the total market.

 

Foreign investment has continued despite some major hurdles.

 

The costs of moving money

 

Foreign investors have consistently shown willingness to spend big money to buy property in the U.S. But the costs don’t end with the value of the property. Since buyers need to send huge amounts of money over, transfer costs can quickly build up.

 

Ever-changing exchange rates

 

In addition to transfer costs, there is the headache of ever-changing exchange rates. Some currencies are highly volatile, and payments from one month to the next can vary widely in price. Even the more stable currencies can have a big impact, as small changes are significant when sending big amounts over.

 

Banks make this even worse by dictating their own exchange rates, which are almost always worse than the real market rates. It’s been shown time and again that this is no more than a clever way for banks to hide extra fees.

 

Unpredictable political future

 

No market exists in isolation, and this is especially true of the real estate market. Political turmoil can rock the housing market significantly, making investors wary of what might happen to their asset should certain scenarios occur.

 

With Donald Trump running for presidency, these are especially uncertain times in U.S. politics. The consequences of a Trump win are feared around the globe, and the instability he could usher in might cause investors to pull their assets, causing the markets to tumble. His plan to deport 11 million undocumented migrants could see empty properties and a decline in property values.

 

Stringent regulations and taxation

 

All countries have regulations and taxes on real estate. The U.S. is not known for particular stringency. For big buyers, these regulations are not seen as much of an obstacle.

 

Smaller investors, on the other hand, are often wary of regulations they don’t understand. They might not have legal teams to walk them through it. It’s dangerous to invest when you're unsure of what you can and cannot do.

 

There are solutions

 

Nonetheless, foreign investment has been growing. The above hurdles have not stopped those intent on buying New York and U.S. real estate. The big investors, of course, have it much easier, but there are simple solutions for smaller investors as well.

 

Foreign currency providers, which have grown in response to what is seen as unfair banking practices, are providing many investors with an easy outlet. These fx companies provide transfer services much cheaper than the banks, whether it’s a transfer from UK to USA or to some other destination. Most of them don’t include the same type of hidden fees. And they offer options such as forward contracts, which allow investors to peg an exchange rate for up to two years, so as not to worry about currency fluctuations upping their expenses.

 

Furthermore, they are experts in all aspects of property, and provide free guidance to clients. Instead of having to do the research themselves, foreign investors can rely on the knowledge of the Forex firm, which will inform them of any regulations and taxes, and help them through.

 

What’s next for New York real estate?

 

Since 2008, the real estate market in New York has been growing. Over the past couple of years, it has truly boomed. But many analysts are worried about a possible collapse. Certain practices by real estate companies mirror those from before the crash.

 

During a boom, anxiety about future crashes is expected. While circumstances right now favour the market, they could change fairly quickly. Interest rates could rise, political instability could have its consequences.

 

Nonetheless, there are still many positive signs. Investors should always be wary, but should never stop looking for the right investments. In the meanwhile, the property marketing in Swindon is absolutely booming over the past year with a 9% increase according to RightMove, so there’s a viable alternative nearby.