With 1.9 million houses on the domestic market and U.S. buyers not active, foreign buyers are snapping up some good deals.
An estimated $82.5 billion in total sales went to international clients in the 12 months ending this past March—up 24 percent from the same time last year—according to a report by the National Association of Realtors (NAR).
“Not only are the numbers of clients for those who work with international buyers up, but the typical price of the homes they buy is quite a bit above the market as a whole,” the NAR report stated. “Florida, Arizona, and California continue to attract the most international buyers, but the trend lines are moving up for other states.”
Characteristics of Foreign Buyers
Different nationalities preferred different locations when buying property, according to the report. Canadians have their eye on Chicago, Las Vegas, Miami, Orlando, and Los Angeles, while those from India are mostly interested in Houston, Miami, Los Angeles, Chicago, and Las Vegas.
Chinese buyers prefer the housing market in Los Angeles, Las Vegas, Irvine, Orlando, and San Francisco.
“Canadians led the way in U.S. residential home purchases, followed by China, Mexico, Britain, and India. Florida was the biggest beneficiary of foreign interest,” the NAR report said.
In 2011, Florida’s percentage of housing sales to international clientele was 31 percent, dropping to 26 percent in the first three months of 2012. In California, sales were 12 percent in 2011 and 11 percent in the first three months of 2012.
Buyers from China and Hong Kong bought commercial property worth $1.71 billion in 2011, according to the Artisan Business Group website.
International buyers are divided into investors who have no real interest in moving to the United States, individuals or families who moved recently to the United States, and temporary residents.
By March, 27 percent of U.S. realtors had worked with international clients, down 1 percent from the value in March 2011. In 2009, only 23 percent of U.S. realtors had international clientele.
According to a survey of realtors, foreign buyers believe that economic conditions, such as the depressed U.S. housing market, make it more favorable to buy U.S. real estate. Another positive is a lowered U.S. dollar exchange market.
Describing foreign buyers, the June NAR report suggests that “perceptions about trends in the U.S. real estate markets also have positive and negative impacts: some purchasers buy at ‘cheap’ prices while others decide to ‘wait for prices to go lower.’”
Chinese Purchasing Power
“A young Chinese couple threw $34.5 million into a luxury mansion in Hollywood, making themselves a new neighbor of David Beckham, Jennifer Lopez, and George Clooney … Chinese buyers have spent $9 billion purchasing properties in the U.S.,” according to a recent article on the Investing in Properties Overseas, a mainland China website.
San Diego has become a real estate purchasing hub for rich Chinese buyers, according to Susana Corrigan, a San Diego realtor. The trend is toward the purchase of homes worth $1 million or more, generally between $2 million and $3 million, and beachfront properties. One such area is in the San Diego and La Jolla, Calif., region.
Scott Cheng, a San Diego real estate broker, explained in an email that “there are two types of foreign buyers and they look for different things.”
Some Chinese buyers are looking for a single-family home, with a price range between $450,000 and $890,000. These buyers generally have children and want them to be educated in the United States. They buy in different locations in California, such as Carmel Valley, Del Mar, Scripps Ranch, and Rancho Bernardo, according to Cheng.
Others have no interest in moving to the United States, but are looking for a more than average profit. These types of buyers may be interested in buying run-down or distressed properties, making improvements and then selling. They generally look for a profit margin of between 10 percent and 12 percent and expect to sell within four months of the purchase date.
“A lot of Chinese nationals are looking at the U.S. because it’s a[n] opportunity to diversify their real estate portfolio. … Investing in the U.S. gives them the ability to move some of their money offshore and diversify any potential risks,” Cheng said.
In the Washington, D.C., metropolitan area, there are a number of Chinese buyers who have either moved to the United States or are buying for investment purposes.
Realtors in Washington, D.C., are reluctant to talk about their Chinese clientele. If they do provide information, they declare that such information may not be published. One reason is that many Chinese buyers do not want their purchases to become known, and secondly, the realtor doesn’t want to lose the opportunity to sell to foreign nationals.
A review of public records of single homes owned by Chinese nationals in a number of Washington, D.C., metropolitan areas, as found on the Department of Tax Administration’s Real Estate Assessment Information website, showed a large number of records with “Name Withheld by Request.”
One public servant in one of the counties, who asked not to be named, said that even people working for the CIA and FBI do not ask that their names be withheld on such public records.
Although 1.9 million houses are on the market, inventory has decreased by 20 percent when compared to May 2011.
The NAR report seems to herald an uptick in the country’s real estate woes, but the numbers do not include shadow inventory, which are properties that are still lingering in foreclosure and haven’t hit the market yet.
The exact number of homes in foreclosure that have not been included in the for-sale inventory can only be estimated. One estimate in prior years was that 7 million shadow inventory homes were on the market, according to an article on the MarketPulseFX website.
The MarketPulseFX article predicted in the beginning of 2010 that “there will be a demand for properties initially, and as long as buyers feel they are able to purchase homes at below market values, demand will remain strong. However, given the size of the shadow inventory alone, supply will quickly outpace demand and inevitably, prices will fall thereby threatening a short-term rebound in the housing market.”
Additional reporting by Olivia Li
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