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Value of foreign investment in US homes rockets, latest report reveals

July 10, 2015Article by Charlotte Ashton

According to the National Association of Realtors (NAR), around 4% of US homes (209,000 houses) were bought by foreign buyers between April 2014 and March 2015. The figure represents a 10% drop over the previous year, due to the strength of the dollar. However, while the volume of purchases by overseas buyers may have diminished, the value has shot up by 13%, from $92.2billion in 2013/14 to US$104billion in 2014/15.

So, who’s buying in the US?

For the first time, buyers from China have topped the list of foreigners buying up US real estate, knocking the Canadians off the top spot. It’s something that those in the industry have expected for several years, as Ray Withers, Chief Executive of leading property investment specialists Property Frontiers, explains,

“We’ve seen a growing trend of Chinese buyers purchasing US real estate for several years. The NAR’s 2014/15 Profile of International Home Buying Activity has shown they are now not only the largest purchasers by volume (at 16%), but also by value, with an average spend of $831,300. As a group, Chinese buyers like high end investment properties in prestigious locations, so there’s a lot of focus on cities like New York and LA, though their interests extend right the way across the US.”

Canadian buyers still accounted for 14% of homes bought by foreign buyers during 2014/15. Buyers from Mexico, India and the UK also accounted for substantial proportions of the overall number of houses purchased.

A stable base

“With currency wobbles in Europe, the US provides a stable playing field for investors,” continues Withers. “The dollar may be strong, but in an uncertain market that can be a positive attraction for many investors. It’s about playing the long game, not making a risky overnight profit that could backfire significantly.”

Withers cites Chandler Oaks in the South Carolina city of Gaffney as an example of what investors are looking for from the US market. The development consists of one and two bedroom apartments designed for students and young professionals to rent. With rents on the rise in the US, this type of investment is much in demand – 70% of the apartments at Chandler Oaks have already sold out. Rents in the US have risen 3.7% year on year, with Zillow’s March data showing that annual rental growth exceeded annual house price growth in 17 of the largest metro areas of the US during March.

Rising rents are good news for investors looking for strong yields. At Chandler Oaks, a minimum of 11.4% gross yield is offered for the two bedroom apartments, thanks to a contract with a local college that will provide tenants to May 2019. Underwritten income of 8% NET is also in place until the start of 2020.

These strong yields are one reason that foreign buyers look to US, as they can generate greater income than they could on similar properties back home. Local property restrictions also come into play – in Beijing, the maximum property ownership limit is two homes, even for investment purposes, hence the cash purchase of so many homes in the US.

Whatever their individual reasons, investors turning to the US are looking for stable investment opportunities with healthy returns, exactly like Chandler Oaks. Investment there is available from $48,671 for a one bedroom apartment.

For more information about opportunities in the US housing market, contact Property Frontiers or call +44 1865 202 700.

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