While many Americans believe that the US economy is in a league of its own, the real estate market will continue to move forward and America is still the major powerhouse of the world economy, this may not necessarily be the situation going forward. There are certainly mixed expectations for the US real estate market over the next 12 months with optimistic hopes of 3% economic growth likely to be dashed in light of the difficult worldwide economy. So, will overseas investors really dictate the US real estate market 2015?
Overseas investment in US real estate
Before we even begin to look at the current structure of overseas investment in US real estate stock it is worth noting that foreign direct investment in the US has fallen from 37% in 2000 down to just 19% in 2013. Much of this shift has been a result of global competition and the emergence of new powerhouses such as those in South America. Even though it is likely this percentage will increase as the US economy strengthens in years to come it is unlikely to return anywhere near the 37% of 2000.
Perhaps the most striking figure associated with US real estate investment is that 40% of all overseas investors are located in Europe and Latin America. Indeed a further 30% are situated in Asia which paints a very difficult picture when you bearing in mind the economic problems across these continents.
Local markets with a very different make-up
A recent report also highlighted the very different trends across regional US real estate markets. Did you know that 74% of foreign investment in California real estate comes from Asia? Were you aware that 59% of overseas investment in Texas property originates from Latin America? There are many similar situations across other local US real estate markets which makes it very difficult to generalise this enormous and very influential market.
If you did not do your research on US real estate and looked to invest in a “general fashion” it would be very difficult to obtain the best results. In many ways you need to bring together similar local real estate markets and treat them as one “country” with a common currency. Unfortunately, this strategy looks something like the European Union and we all know what happened to that common currency strategy!
There has been a monumental amount of Chinese investment in US real estate during the last few years. This all seemed very straightforward when the Chinese economy was moving ahead but recently there have been difficulties and the property market is under significant pressure. There are a number of Chinese property companies on the verge of financial collapse suffering from overconcentration on China’s more prominent regional markets.
Many Chinese investors will at some point repatriate more and more of their assets from locations such as the US which will reverse the recent trend in increased money flows. The US real estate market will eventually balance out, foreign investors will return although optimistic economic forecasts for 2015 may be masking the underlying situation in the short term.