***This blog entry is a guest post from Elton Steinberg, Marketing Associate at United Realty***
Foreign investment has been a significant driver of the US real estate market recovery. Investors from across the globe have been responding to negative stimuli abroad by investing in US real estate. Investing in US real estate provides foreign investors protection from economic
instability and foreign government corruption, while offering significant returns compared to low performing bonds. Such benefits have led foreign investors to favor direct investment in US properties and shy away from funds that may lessen risk.
Japanese investors have historically had confidence in the benefits offered by investments in US real estate. Often close partners with US businesses, Japanese investors have in the past sunk billions of yen into acquiring US assets. Recent fear about future depreciation of the yen has made investment in US real estate increasingly advantageous. Investing in US real estate allows Japanese investors to protect their wealth against the negative effects of Japanese monetary policy. Assuming that the dollar remains strong, investments in US real estate enable foreign investors to strengthen the value of their holdings. The advantages of US real estate as an inflation hedge coupled with the current high rates of return have motivated Japanese investors to continue to transfer wealth to the US.
While traditional foreign investors in US real estate have recently had a significant impact on the market’s recovery, less traditional foreign investors are increasingly likely to drive future growth. Brazilian, Russian, Indian, and Chinese investors have been eyeing the US real estate market as an opportunity for investment. Each responding to local conditions, BRIC countries have taken note of the benefits offered by investing in US real estate.
Enriched by the rapid growth of the Brazilian economy, a growing number of Brazilian investors have worked to protect wealth from the negative impact of local instability and earn profits from safe investments. While impressive returns are offered by Brazilian real estate investments, inflation and government corruption in Brazil motivate many Brazilian investors to prefer less risky US real estate investments. A fulminating public has made many Brazilian investors fearful of future political instability and economic fallout, giving another incentive to transfer wealth to the US. Like many wealthy Central and South Americans, Brazilians have flocked to Miami, purchasing stakes in local assets.
A recent spree of acquisitions by Russian investors has surprised American real estate experts as Russians have been providing a more significant portion of capital for US real estate acquisitions. Apparently dissatisfied with the benefits of investing in art and other luxury items that fail to yield desirable returns, Russian investors have begun purchasing trophy properties in Manhattan and Miami to gain more appropriate returns and shield wealth. Following the economic crisis in Cyprus, Russian investors have been seeking an alternative safe haven. Along with the advantage of keeping wealth out of reach of the Russian government, investments in US real estate provide Russian investors with significant returns and residence in attractive locations. It is becoming increasingly possible that Russian investors will be a consistent source of capital for investment in US real estate.
Considering the volume of foreign investment in US real estate, one would think that domestic funds investing in US real estate and catering to foreign investors would raise capital with ease. On the contrary, a number of major funds have been forced to exit the market. While such funds offer the services of managers with expertise in US real estate and opportunity to diversify, many foreign investors have avoided such investments. It would seem that communication difficulties have prevented foreign investors from realizing the advantages such investment funds offer. A variety of conditions motivate foreign investors from different countries to invest in US real estate. Perhaps, foreign investors expect American funds to cater to each of their disparate needs when encouraging foreign investors to trust them with their wealth. It will be interesting to observe whether or not foreign investors remain convinced that direct investment is the optimal strategy as foreign investment continues to drive growth.