With real estate becoming a particularly enticing form of investment for global investors in search of good yield to risk ratio, United States has emerged as the new darling for many. With the overall improvement of the economy and relative transparency of monetary policies, and against the backdrop of slowing growth and oversupply in other regions, United States is seen as a glowing beacon emerging as a solid ground for overseas property investment.
iProperty.com speak to Amy Williamson, Senior Negotiator, International Residential from Knight Frank, and Richard Jordan, Senior Vice President of Global Markets from Douglas Elliman Knight Frank (DEKF) Residential to find out more about investing into the US market.
Why has there been an increase in the interest in the US real estate market?
In recent times, the US market has become the safe bet for many investors, as compared to property investments in emerging regions and traditional favourites. From the global perspective, the re-emergence of the US dollar is another encouraging sign for many investors who are looking for a stable, and growing economy, with strong capital appreciation and good rental yields to park their investment in.
Compared to London, which has already seen strong buying over the recent years from Asia-based investors, the United States, and in particular, New York offers a tremendous opportunity for both starting investors looking for value and seasoned investors interested in diversifying their real estate portfolio. The rising US economy instils confidence, while the transparency in the policies and tax structure helps create a safe haven for investors to invest in the country.
What are some recent trends over in the US real estate market?
Chinese developers have been spreading their investments overseas, particularly to the west, with the United States the country of choice for China buyers, with Canada and Australia coming in at No.2 and No. 3 respectively.
Similar to the Japanese back in the 1980s, it’s now China’s turn to be snapping up real estate all over the globe. Though they have been buying into New York real estate for a while now, it’s only recently that these companies have stepped up to head the developments.
Based in Shanghai, the Greenland Group has been involved in one of the highest profile project, which was also their first in New York City when it bought the majority stake in Brooklyn’s Atlantic Yards project from Forest City Ratner for USD$200 million. Of course, last year’s sale of the iconic Waldorf Astoria hotel for nearly US$2bn to Arbang Insurance Group grabbed the headlines too.
From the Chinese investor point of view, they see high quality U.S. real estate as a safe haven for their investment portfolio, having switched interest away from markets like Shanghai, Hong Kong and Singapore amid fears that prices hit the ceiling. Many Chinese buyers are also investing abroad so that they can provide a home for their children, near top colleges of their choice.
What are some considerations for those looking to invest into US real estate?
Apart from the location and the type of properties, the following financial and tax aspects should be taken into account when buying real estate in the United States.There are very few differences between a foreign and US buyer when it comes to purchasing real estate. In the US, financing is readily available for foreign buyers, with most qualified foreign buyers able to obtain financing for properties with a loan-to-value ratio of 50%.
Another important thing to note for is that foreign buyers are generally prohibited from purchasing cooperative properties as it usually requires a buyer’s course of income to be from the US and assets to reside in the US (at least the bulk of the assets). Most of the time, foreign buyers would do well buying Condominiums, Condops (Coops with Condo rules), and Townhouses.
Where investors should be looking to buy?
New York remains one of the key investment city for many, while we would advise taking a look at downtown Los Angeles too.
Being one of the major “gateway” cities and a market that most already know well or may already have a presence or commercial interest in, New York remains one of the hottest property investment destination for many.
According to the report from Douglas Elliman Real Estate, there was an increase of 19% in the average sales price for real estate in New York from 2013 to 2014, with a strong combination of low inventory and high demand, with high employment growth and an increasing number of foreign buyers behind the rise.
Though, for investors searching for the next Brooklyn, Long Island City stands out as the estate to be in right now. The westernmost residential and commercial neighbourhood of Queens, it has been heralded for its rapid and ongoing residential growth in recent times. We are also seeing plenty of one and two bedroom units moved quickly off the market, and recently, the three and four bedrooms have followed suit.
What returns can investors expect?
The average price per sq ft for a Manhattan condo is currently US$1,589. The median sales price for a 1 bedroom condo in Manhattan is US$920,000 and US$1,980,000 for a 2 bedroom condo. Yields are approximately 3%.
For investors looking at a higher rental returns in the near future, Downtown Los Angeles is another fine option. Jobs are flowing back into America’s second-largest city, with expected increasing home prices and sales in the near future. One would also be looking at potential annual rental returns of around 4% in this famed centre of the nation’s film and television industry.