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Why now is the time to buy US real estate
November 20, 2015Article by Clare Moorhouse
In keeping with our ethos of due diligence and offering expert advice, Property Frontiers speaks with US developer Anton Tardif and his years of US real estate experience.
Anton, you’ve been involved in US real estate for 10 years now. How has the market changed since 2005?
It has been an incredible period, like nothing that’s been seen since the 1930s and the Great Depression. In 2005 the property market was still very much on the up, the price of land was the highest it’s ever been and the cost to build in some areas was similar to the UK. By 2006 things started to flatten out, which was thought of as positive and likely that the market wouldn’t “overheat” but by the end of the year events in the banking world led to the lack of ability to continue to finance property and the market simply imploded, along with the US economy overall.
By 2010 the market had dropped to its lowest point. This offered an enormous opening for investors to get back into the US property market when the only way the market could go was up – and that opportunity is still there. It was a slow movement until around two years ago, when confidence returned to the market. Now the market is growing by around 6-8% p.a. and providing good yields.
The US real estate sector and associated lending is said by many to have been the cause of the global financial crash. Do you think this is a fair statement?
I agree, although worldwide greed for buying toxic mortgages (which in theory offered high returns for tens of years) also played a role in causing the problems. Once those debts could not be paid, then all the investments were lost, leaving the banks falling to pieces and in debt themselves.
How has the market recovered since its low point in 2010?
It has recovered by around 60% so far. My view is that sometime during the next five years it may well surpass its former peak as the economy strengthens. As a seasoned property investor, I’m staying right here!
What is the current state of the US real estate sector? Are mass foreclosures still an issue or has that activity slowed?
The US real estate sector is extremely buoyant. There are still foreclosures, but compared to what I could buy two years ago they are few and far between and prices have risen considerably.
Post-crash, have US citizens made a shift in tenure from ownership to renting?
Yes indeed. There simply isn’t enough property for rent in some areas. Many of those who lost their properties don’t seem to want to borrow again and are renting despite their ability to purchase. The shift has impacted on rents and yields – we are calculating that our projects will get an increased yield of around 3-5% p.a.
The US is an enormous nation. Could you pinpoint any real estate hotspots that could be attractive to investors?
Real estate varies geographically. At the moment locations within a 30-40 mile radius of downtown Charlotte look good, so this falls into two states: North and South Carolina. Charlotte is the second largest banking centre in the US, it has one of the main hub airports in the country, so industry is there and growing massively, as is the need for residential and commercial real estate. I guess there are a few other cities that offer similar rewards but we like to work in areas we have known for a long time and where we are able to oversee the long-term management of the properties.
Which types of properties are most in demand in these areas?
For the local market it’s new build houses and apartments/condos. For investors to maximise income and growth it’s refurbished and properly managed condominium apartments. These are by far the best and safest option.
Why is now the right time for foreign investors to buy US real estate?
The market is getting stronger and we’ve seen an increase in investors this year – more than any other time in the last five years. We are investing heavily in the US and I have 30 years’ experience in development. I wouldn’t be so involved if I couldn’t see the property market increasing and with a long-term future.
Price is the main attraction for overseas investors. Compared to other markets such as the UK, the US is a fraction of the price and offers stronger growth and higher yields. Other countries, for example Brazil, are investing massively into US real estate as their own currency is weakening, so not only are the returns good, they are also in a strong currency and a safe political environment.
There have been reports of a rise in US mortgage approvals of late, is obtaining finance for real estate purchase getting easier?
It’s easier but still not easy. For the local market there’s a lot more due diligence carried out by the banks on the purchaser and their ability to repay. For overseas buyers there’s again a lot of due diligence and high deposits can be required. This is having a positive impact on the market. Prices are rising, but not anywhere as much as they would if it was easier to borrow. This means the market should remain stable for longer.
Where do you forecast the US real estate sector to be in 2020 and 2030?
That’s hard to say. Personally I will review the market constantly and I hope we see steady growth in line with the local economy and the ability of the local market to borrow, buy and maintain their mortgage payments. This will give much greater strength to the market. I have no doubt, as always, the market will flatten at some point in the future but not soon and I don’t believe that it will be like what we’ve seen a few years ago.
What impact do you think the 2016 Presidential elections will have on the real estate sector?
Wow that’s a tough one but I think all presidential candidates will want to see the property sector stable and with steady growth. It forms a big part of the overall economy, everyone needs a roof over their heads.
For more information on investment opportunities in the US, contact our Investment team on +44 1865 202 700.