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The changing face of foreign investors

Sunday, 28 July 2013 11:14
In December last year we discussed the huge influx of wealthy mainland Chinese shopping for high-end properties mainly in New York.

At the time it was estimated that Chinese investors had purchased $7 billion worth of U.S. homes within a 12- month timeframe. Well we can now report that these, flush with cash, Chinese homebuyers are continuing to flood into the U.S. housing market, and prepared to pay top dollar.

According to new figures from the National Association of Realtors, Chinese buyers have now spent over $12 billion on US property in the 12 months ending March 31 2013. However the location has extended and the area that now has the greatest impact from these Asian investors is California where it is reported that more than half of the homes that are purchased by foreign investors are going to Chinese nationals. Many of these purchases are made through the U.S. Government investor visa programme, which requires foreigners to invest a minimum of $500,000 in a business to provide or preserve 10 jobs. As an example this could also be achieved by investing in say a condominium complex together with the related jobs in managing the project. According to government statistics 80% of these 2012 visas, which are seen as a fast track route to a green card, went to Chinese nationals

The Chinese have become the second largest foreign buyers of US homes behind the Canadians that continue to hold top spot and accounting for almost a quarter of foreign buyers sales in the 12 months to March 2013. Canadians have not only been very active in Midwest states with close proximity to Canada but also in the Sunbelt states. South American investors from Brazil, and increasingly Argentina, appear to be targeting New York and Miami where there has also been interest from Venezuelans. The latter appear to be diverting funds into safer havens not so troubled as their home economy. Many South American investors are buying to rent mainly back to U.S. citizens.

So as the competition in the housing market heats up foreign investors are playing an increasing role and putting upward pressure on home prices. New research from real estate website Trulia, suggests that the demographics of the foreigner investors searching for properties is now more diverse with people in lower and middle-income countries, starting to consider the U.S. real estate market. Canada and western Europe conduct the highest number of internet searches but they are reducing while Africa and Asia show an increase. Other countries now starting to appear on the metrics include India and Russia.

The question is what affect does this foreign interest have in the housing sector? According to Trulia’s Chief Economist, Jed Kolko, it generates competition and drives up prices. However he is quick to point out that the areas targeted tend to be cities and areas that are internationally known and he is non-committal on how steady the buyer interest will remain as prices rise but says,

“Prices have been rising in the U.S. at a rate that wasn’t anticipated. U.S. real estate [for foreigners] is looking like less of a good investment than it did a year ago.”

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Fairhomes is a Gibraltar based group that focuses on investing and managing real estate throughout the world.

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