Foreign Investment in U.S real estate

In Mid-March of 2014, foreign direct investment in real estate sector in the United States reached up to approximately $9 billion, with several billion-dollar agreements still in process. Since the Chinese economy has gradually slackened and the Canadian market has become more saturated in the real estate cycle, foreign investors are turning their attention to the U.S. market now more than ever. Dan Fasulo, the Managing Director of Real Capital Analytics, stated that there has been an enormous inflow of investment in the commercial real estate sector over the last 24 months. In 2013 the cumulative inflow from foreign investment in direct commercial real estate was close to $40 billion according to the Commercial Real Estate Development Association.

According to Jones Lang LaSalle (JLL), an investment firm, 10% of all capital real estate investment comes from foreign investors. The major source of investments in 2013 is coming from Canadian real estate buyers using pension funds. The Wells Fargo Center, one of the tallest buildings in downtown Seattle, was acquired by Canadian pension fund group Caisse de Depot et Placement du Quebec’s real estate unit Ivanhoe Cambridge in June 2013. Closing in on Canada’s exploits, other vital investor companies from China, Australia, United Kingdom, Norway, Singapore and South Korea have also been busy with their own efforts to penetrate the American market. According to reports by Deloitte, Chinese investors climbed up into being a significant contributor in the U.S. by investing $5.8 billion in a 15-month period. Many foreign companies are seeking partnership opportunities to explore high-profile deals, like the Chines real estate subsidiary Cindat Capital Management Co. that partnered with Chicago based Zeller Realty Group to purchase a 65-storied office tower in the area for around $304 million in March of this year. The most attractive cities for such investors are New York, Brooklyn, San Francisco, Houston, Florida and Los Angeles because of large quantity of existing commercial property. There are other countries like the UAE, Italy, France, and Switzerland whose prospective rate of growth has been increased tremendously and are considering making a move in the U.S.

The large number of foreign investors entering the U.S. real estate scene has not only impacted the country’s overall economic growth but has also had a singular effect on both U.S. citizens and foreign immigrants. While there is no direct relation between FDI and housing for students, FDI is having a positive impact on the communities by empowering strong networking among them which is supporting the international students housing. Real estate owned by foreign direct investors are more willing to extend their support to foreign students by finding them apartments to rent, or even sub-letting their homes. In some cases people sharing the same nationality tend to support these non-immigrant students by acting as their financial guarantor, which makes it easy for students to find renting options without having to suffer from unreasonable conditions.

The good news is, in the United States,care available for both citizens and lawful permanent or non-permanent residents. Many loan providing programs, such as Fannie Mae, Freddie Mac and the FHA, offer similar rules and the verification requirements are also under the same mortgage programs at comparable rates and terms. There are no extra costs, fees or even high interest rates for a non-immigrant borrower. This made the demand for houses soar to even higher levels than expected. According latest data from the National Association of Realtors, by the end of 2013 foreign buyers had increased to $68.3 billion of single-family homes, which is about 7% of total population in the U.S.

As a result of high demand for houses among foreign buyers, the prices have been increasing rapidly, with an estimated rise by about 10.9% nationwide. According to Jonathan Miller, president of appraisal firm Miller Samuel, the average one-bedroom apartment rents for more than $2,600 a month in Brooklyn, NY. This rise in house price has had an undercutting impact in the U.S real estate industry as a whole. There are many non-immigrants, especially students, who have resorted to sharing homes and even rooms. Due to increase of house rents, whereas the individual income levels remain constant, sharing homes is becoming a growing trend in many cities especially in metro areas. Not only are the international students, but also many locals are now pairing up to share houses to reduce their monthly expenses. Moreover due to high housing prices, many young-adults return under their parents’ roofs as they are trying to conserve enough money to pay for other accommodations. In addition to that, increased cost of housing is also affecting the businesses in not so positive way, especially the small and median enterprises as well as startups. Small businesses produced 46 percent of the private GDP in U.S but increase in house rent made the business difficult to operate eventually having a negative impact in the economy as a whole.