US markets wide open to foreign capital—analyst

by Ephraim Vecina24 Feb 2016
Foreign investments in New York City alone accounted for approximately 75% of the metropolitan area’s luxury real estate, according to a long-time industry commentator and analyst.
Writing for Forbes, business and investing author Kenneth Rapoza noted that the marketing for a significant fraction of high-end homes in major U.S. cities is aimed towards foreign real estate agents who are working with individuals—some of whom are unscrupulous characters—interested in purchasing American property.
Rapoza pointed at recent steps taken by the government that have made it easier for foreigners—especially Chinese and Arabians—to own U.S. real estate, at the expense of domestic buyers. Among these developments include a December 18 regulatory revision that facilitated an easier and cheaper purchase process for foreign stock funds and REITs.
“It is unlikely that they can sell it at a profit in dollars, but based on where their money is coming from, it’s a profit in their local currency if one assumes dollar weakness over time instead of prolonged dollar strength,” Rapoza stated.
“This also opens the door for institutional investors, particularly those in Europe, who are dealing with zero yield and negative interest rates and don’t have attractive options for capital preservation long term,” Rapoza added. “Now they have a tax-friendly haven for moving money off shore in a tangible asset, like a high rise mixed-use dwelling in Manhattan, instead of putting it in low yielding debt, domestic equity or foreign currency bonds.”
According to Rapoza, the comparative tranquility in the U.S. is a major attraction for these moneyed investors.
“It has a stable government. It has a clear rule of law. The new rules may kick out some corrupt money looking to launder capital undetected during the sale. But for the most part, American real estate’s open door policy is one big, colorful welcome mat to rich buyers who are willing to do what most Americans no longer can do: overpay for housing,” Rapoza said.
And while the situation has proven to be a boon for sellers and brokers, Rapoza said that the current climate of consumer confidence comes not from Americans but from foreigners who might depart in droves at the first sign of instability in U.S. markets.
“Unless a young Hollywood celebrity or Rihanna buys it, the smart money is on a rich foreigner. Realizing a profit on this thing is moot. These are mostly money losing operations, and the independent buyer doesn’t care,” Rapoza explained.
“In other words, developers are building hard asset savings accounts…not housing and office towers.”


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