America: still one of the most desirable countries in which to own a home
For many global buyers, US property represents a safe haven investment – with multiple other advantages
A strong US dollar, rising interest rates and the prospects of US economic growth losing steam during 2019 might be expected to cool foreign buyers’ interest in American property. But not a bit of it.
America remains one of the most popular places in which globally mobile, wealthy families seek to buy homes.
Key markets of interest to foreign buyers – which tend to be large urban centres – are outcompeting overseas destinations, particularly as governments in other parts of the world introduce legislation to discourage foreign buyers.
But what are the latest trends in who is buying, and where? And what are the key considerations?
US homes retain their allure for overseas buyers – but the buyers are changing
Lawrence Yun, Chief Economist for the National Association of Realtors, says interest continues to be concentrated on major metropolitan areas that foreigners have always favoured, such as New York, Miami, Los Angeles and San Francisco. But second tier markets are growing fast, he says.
Paul Tostevin, Associate Director of Savills’ World Research team in London, also notes this trend, pointing as examples to Seattle and Austin, Texas, and Raleigh in North Carolina.
The shift is partly down to who’s buying. Liam Bailey, Global Head of Research for Knight Frank, says a significant growth area is being driven by “Asian demand for properties located near major universities and some schools”.
This reflects a powerful Asian demand for a top US university education for their children, he says.
Asian parents are hoping to avoid the cost of renting, while at the same time giving offspring a US base from which to launch their careers in the US. Chicago and Boston are two markets benefiting from this activity, he argues.
“Another trend we’ve been seeing is a lowering of the price point Asian investors are looking at,” Liam Bailey adds.
“One reason is that the wealthiest Asians have already invested overseas. Now you’re getting a new group of investors who are looking for a slightly lower entry point – closer to the US$600,000 to US$700,000 level, rather than the US$1 million to US$1.5 million level we were seeing three or four years ago.”
Chinese buyers are far and away the biggest group of purchasers of US residential property, according to NAR figures, which have placed them at number one position for six years.
In the 12 months to the end of March 2018, they spent an estimated US$30.4 billion, almost three times the US$10.5 billion spent by the second-largest foreign buyer group, the Canadians.
Altogether, just five countries accounted for nearly half (49%) of the dollar volume of US residential property purchases by foreign buyers, the NAR report revealed: in addition to China and Canada, in declining order of total sales came the UK, India and Mexico.
Perhaps not unexpectedly, foreign buyers tend to target costlier properties than resident Americans, with Chinese buyers paying the most on average.
Foreign buyers of US homes paid a median US$292,400, compared to the median price for local purchasers of US$249,300 – Chinese buyers paid US$439,100.
Almost half of all international transactions were in cash, compared to just one in five local transactions.
Why buy? It depends on the nationals involved. Some 86% of Indian buyers, for example, said they planned for the property to become their primary home, the highest percentage of any nationality.
Canadian buyers were the most likely to use their US property as a vacation home, while Chinese buyers were the most likely to say it was bought to provide student accommodation.
Politics and stability
While many in the US talk of political instability under President Donald Trump, this is not what many other nationals understand by the term, explains Reaz Jafri, a New York based immigration lawyer and Head of Withers LLP’s recently launched Withers Global Advisors consultancy.
“In many countries throughout Asia and Latin America, people are concerned about political instability of a type that is very different to what we in the US consider,” he said. “In countries where there are mass kidnappings, military coups and corruption, the US is still seen as a desirably stable place.”
Brexit also appears to be having an effect, he says, describing a “surprisingly strong” stream of enquiries on the part of wealthy British citizens.
“Normally British investors are wary of the tax implications,” he notes, nodding to the fact that US taxes apply to “US persons” wherever they live in the world. “But as a result of Brexit, that’s now not seen to be as important, for some, as the option of being able to work and live in the US.”
Bargain prices? Don’t forget costs of ownership
Large, luxury properties may be cheaper in US locations on a square foot basis than in other world destinations. But that’s not the whole picture.
Paul Tostevin of Savills stresses the need for foreign buyers of US homes to consider ownership costs as well as purchase costs when comparing, say, the price of a home in New York or Miami with one in London or Hong Kong.
Pointing to a report his office issued in July, he notes that over a five-year holding period a US$2 million property in New York will end up costing a non-resident foreign buyer more to purchase, hold and sell than a US$2 million property purchased in Dubai, for example, where only modest government registration fees apply at the point of purchase.
In Vancouver, Hong Kong and Singapore – three jurisdictions that have introduced stiff stamp duties on foreign purchases of property in an effort to cool their markets – total costs are the highest of those surveyed.
Reaz Jafri also warns of the need for advice on how ownership is structured. Buying multi-million-dollar US homes via a company structure rather than in one’s own name is generally advisable, he says, because this means they aren’t subject to estate duties when the owner dies.
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.