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26

August

2016

Sentiment for US Real Estate Soars among Foreign Investors

Healthy US Real Estate Market Continues to Attract Savvy International Investors

American realtors have reported continued interest in US real estate investment among foreign buyers that shows no signs of slowing any time soon. This is due to the compelling economic fundamentals of the world’s largest economy and its healthy real estate market continues to attract savvy international property investors seeking yield growth opportunities.

There are several key drivers in foreign capital investment in America including the on-going global search for yield, which is not being satisfied by the fixed-income markets or the stock market. Real estate looks good in comparison for current return on investment, particularly in the US where there is currently more value in real estate in comparison with most other developed countries.

Foreign investors in America have begun to understand the value of long-term leases with good-credit tenants in places most hadn’t heard of like Central Pennsylvania. The combination of these things plus the reliability of the dollar is enticing.

There are also pockets of foreign capital representing trade surpluses that have to be invested somewhere and real estate is part of that allocation for many globally; the US is one of the places you want to be if you are a foreign investor in real estate.

There is a wide variety of foreign investors in the market. Regarding the accumulation of trade surpluses, it’s easy to see why a lot of the recent investing has been from sovereign-wealth funds and from large, emerging financial institutions—particularly from the Far East—who have an appetite for real estate.

There are also Korean pension funds and mutual-aid societies, and the Canadians have been active south of the border. There are also the pension schemes in Canada, and the Dutch pension funds have been somewhat active as well.

However, there are some concerns that geopolitical scenarios known as ‘black swan’ events may dampen foreign buyer interest in the US although there is no evidence this is the case as yet.

Black swan events are called that because they’re so hard to predict. A major terrorist attack in a large population centre in the US or an unforeseen political issue are the two things that could be problematic for real estate values and returns for real estate investors.

Nevertheless, only some kind of global event that creates a crisis of trust like that of 1998 with the Russian ruble crisis can cause foreign buyers to call into question the soundness of their investments or the ability of their counter-parties to perform and that could possibly derail foreign investment in the nation.

As markets continue to become globalised, US real estate will continue to be appealing to foreign investors. In addition, with massive surpluses in stock and bond markets, real estate will only become more attractive to overseas buyers, making the outlook extremely bright for the foreseeable future.