Although COVID has been bad for many of us in so many ways, the pandemic did one good thing. The pandemic helped protect American homebuyers from a resurgence in foreign real estate investors. In a big way, the pandemic has throttled the demand from foreign real estate investors to buy American homes.
Before the pandemic hit, 2020 was shaping up to be another solid year. There were growing talks that capital restrictions out of China would ease. Foreigners wanted U.S. assets, and they wanted them bad, partially thanks to a tremendous current account surplus.
Currently, mainland Chinese residents can convert up to US$50,000 per year on foreign currencies for travel, overseas study or work, but not for buying overseas property, securities or life insurance policies.
But before 2018, Chinese foreign buyers were buying United States property in droves. It was easier for citizens to pull resources to buy U.S. property. Then, the Chinese government started cracking down.
Once lockdowns and travel restrictions were in place in the United States and many foreign countries, it became very difficult for foreigners to transact. As a result, COVID gave U.S. buyers the opportunity to buy up our own real estate with less competition.
With the start of the Ukrainian Russian war, the demand by foreigners to buy American real estate has now increased even further. International capital is looking for a safe haven.
Dollar Volume Of Existing Home Purchases By Foreign Real Estate Investors
Below is an interesting chart from the National Association of Realtors that shows the dollar volume of existing-home purchases by foreign buyers. The dollar volume peaked in 2017 at $153 billion, and will likely bottom in 2021.
2017 so happened to be the year China’s authorities began capping overseas withdrawals using Chinese bank cards at Rmb100,000 per year in a move designed to prevent money laundering and terrorist financing, the foreign exchange regulator said.
China sought to limit foreign exchange purchases by its citizens in an effort to conserve forex reserves. The measure plugged one of the few remaining ways Chinese citizens were getting money out of the country by broadening the Rmb100,000 ($15,400) limit from a single account to a single individual. Previously, the annual limit of Rmb100,000 for overseas withdrawals was set for a single bank card.
But today, things are a little different. There is excess financial liquidity in the Chinese financial system. Further, China’s strict capital controls are overly strengthening the Yuan currency, which hurts its exporters.
Therefore, Chinese authorities may be considering loosening rules on overseas investments to ease pressure on the Yuan and the country’s exporters. If and when this happens, we will see billions of new money hit our shores.
Pent-up Foreign Demand For U.S. Real Estate Is Building
I’m mainly talking about China because I’m on the west coast. Foreign real estate money from Asia generally buys up more west coast real estate. However, in reality, China only accounts for about 6% of the total foreign volume of U.S. real estate purchases.
The top-five foreign buyer of U.S. real estate include Canada, China, Mexico, India, and the United Kingdom. Together, these five countries account for 29% of the $54.4 billion dollar volume of foreign buyer residential purchases from April 2020 to March 2021. And pent-up demand for U.S. real estate from all these countries has been building.
To get a better idea of how stricter capital controls and COVID impacted Chinese buying of U.S. real estate, take a look at the chart below. It shows the total number of residential properties bought by Chinese buyers in the U.S. from 2010 – 2021.
Once all the data is compiled, the 2021 count will likely be just 1/3rd of its 2017-2018 highs. If you look at the data from Canada, India, Mexico, and the UK, the drop-off in buying U.S. properties actually looks even steeper.
A Discussion On The Ground In Beijing
I recently talked to an old friend of mine in Beijing the other day. We had met in 1997 when I was an exchange student at Beijing Normal University. He agrees there is growing pent-up demand for capital to leave China. More people are getting fed up with the restrictions.
When the Chinese government started cracking down on companies like Alibaba, the desire for investors to diversify out of China increased. Further, once the China Evergrande debt debacle news started spooking the markets, the demand to buy foreign assets ticked up further.
The dream of foreigners sending their kids to the United States for a better education and a better life has not abated. Instead, it has only grown given how well the U.S. economy has performed during the pandemic. The S&P 500 is one of the top-performing indices in the world since 2020.
If capital controls are loosened in China, I see no reason why demand for U.S. residential properties by foreigners won’t surpass their 2017 – 2018 highs. We’re talking about pent-up demand for over 70,000 U.S. residential properties by Chinese foreign buyers alone from 2019, 2020, and 2021.
Millionaire Migration To More Free Countries
Even if you are a multi-millionaire or billionaire in China, life hasn’t been so good during the pandemic. China’s zero COVID policy has created nightmare lockdown scenarios where residents aren’t allowed to leave their houses for months.
Any wealthy rational Chinese person would want to get their capital out of the country for a better life. Take a look at this millionaire migration chart that shows which countries are losing the most number of millionaires. You’ll also see countries like the U.S., Canada, Portugal, Greece, Israel, Singapore, Australia, and New Zealand are gaining the most number of millionaires.
Logically speaking, countries with more freedoms and more access to vaccines are more desirable. Therefore, those with means are more willing and able to migrate.
How Much Pent-up Total Foreign Demand Is There For U.S. Housing?
Nobody really knows how much pent-up total foreign demand there is for U.S. real estate. However, we can make an educated guess.
If we average the total dollar volume of existing-home purchases by foreigners in 2017 and 2018, we get $132 billion per year. If we then subtract $132 billion by the actual dollar volume for 2019, 2020, and 2021, we get about $205 billion.
Therefore, we can estimate there is about $205 billion in pent-up total foreign demand for existing U.S. homes. But the figure could be much higher since foreigners have also gotten wealthier over the past several years.
Check out this great graphic by John Burns Real Estate Consulting. It shows the top originating countries per agents contacted by foreign buyers in November 2021. As you can see, China, Canada, Mexico, India, and the UK are in the top 5. Indian buyers are seldom talked about, but they could be a huge source of foreign real estate demand in the future.
Foreign Real Estate Demand Is Even Hungrier Than Domestic
If you are an American who wants to buy an existing home, this $205 billion pent-up foreign demand figure should make you nervous. You think that competition from U.S. institutional real estate investors is currently fierce. At least we can all invest with U.S. institutional real estate investors to also profit.
However, with foreign real estate investors, it’s really us versus them. Foreign real estate demand is so much hungrier than U.S. domestic demand. Not only does foreign money want to make a profit because it clearly sees how much cheaper U.S. real estate is compared to every other developed nation, foreign money is also seeking security.
The more foreigners fear capital confiscation back home, the more foreigners want to diversify their assets outside their respective countries. Despite our country’s problems, America is one of the most fair and justice countries in the world. At the end of the day, we need to feel secure financially to feel rich.
Back in 2016, I distinctly remember trying to compete against foreign buyers for San Francisco real estate. It was not pleasant. One buyer bought a neighborhood home for $2.3 million in cash for his 21-year-old daughter. The daughter was going to the Academy of Arts.
She and her boyfriend drove around in matching Porsche 911 Turbos. They constantly woke up our baby boy from his midday naps in 2017 because they enjoyed gunning their engines. It was so damn annoying. Since 2018, the home has actually sat empty.
Foreign Real Estate Buyers Will First Affect The Coasts
The recovery of foreign demand for U.S. real estate will be a big deal in 2022 and beyond. I expect dollar volume figures to rebound over the coming years. The shelter we’ve received from foreign investors thanks to the pandemic is waning. Cash-rich foreigners will be coming back.
If it ever gets as easy to buy United States real estate as it is to buy Canadian real estate, I expect U.S. home prices to rise by an additional 35%+ for this reason alone.
It is odd the Canadian government has encouraged foreigners to buy up Canadian real estate to extreme levels at the expense of its local citizens. Local jobs clearly can’t afford some of the median home prices in some Canadian cities.
If foreign relations improve and/or if wealthy foreigners can do a better job of affecting foreign buying rules of U.S. real estate in their favor, U.S. real estate has tremendous upside. Therefore, if you are an American, you should probably buy your piece of America before a foreigner does.
And where is international money going to buy U.S. real estate first? The coasts because they are easier places to visit and do due diligence. The Russians and Europeans will buy up U.S. East Coast real estate and the Asians will buy up West Coast Real Estate. Canadians will tend to buy in the north and all over America.
Increase Foreign Demand For U.S. Real Estate Due To Geopolitical Unrest
Finally, due to the unfortunate war in Ukraine by the Russians, there will likely be more investors from Russia and Eastern Europe looking to move money out of their country. The Russian stock market has collapsed. Therefore, other citizens of countries without smooth-working democracies may also want to move their capital out.
The obvious destination is buying U.S. assets like real estate. The war reminds the world about the importance of stable governments. In fact, right now is shaping up to be an ideal environment for real estate investors. Inflation is high, mortgage rates are low, and investors increasingly want to own stable assets.
Foreign real estate investors are coming, whether you like it or not. Instead of suffering, position yourself for the impending tsunami of capital.
Real Estate Investing Recommendations
Owning coastal city real estate to prepare for foreign real estate demand is a smart move. I suggest also strategically investing in fast-growing cities via real estate crowdfunding. It’s a hands-off, passive way to participate in the real estate boom while providing diversification.
Take a look at my favorite real estate crowdfunding platform, Fundrise. Fundrise offers all investors to diversify into real estate through private funds that primarily invest in single family and multi-family properties in the Sunbelt.
According to Census data, 10 of the nation’s 15 fastest growing cities are in the Sunbelt, with population growth in major southern cities averaging nearly 9.5% since 2010, compared with 1.8% and 3.0% in the Northeast and Midwest
Fundrise has been around since 2012 with now over 220,000 investors and $2.5+ billion under management. For most people, investing in a diversified fund is the easiest way to gain real estate exposure.
Personally, I’ve invested $810,000 in a private real estate fund since 2016. My goal is to earn more passive income and diversify my San Francisco/Lake Tahoe/Honolulu real estate portfolio.
For more nuanced personal finance content, join 50,000+ others and sign up for my free weekly newsletter. Foreign real estate investors are coming in 2022 and beyond. Buying your USA property before foreigns make prices even more expensive. There is simply not enough inventory to go around.
Very interesting perspectives from someone else in the Bay Area. I’m new to the area, but not to real estate growing up with my parents owning and operating small businesses for most of their life. The residential prices for real estate here are flat out insane–as an investment, even more insane. I could build a hotel in a good location elsewhere in the country and operate that for 5 years and have a much higher return on the investment. In fact, almost any well-run small business can have that type of a return. But it requires work–not at all unlike managing a bunch of rental properties, but your appreciation isn’t determined by some sort of market value, but by the goodwill you’re generating in the business. Just another perspective.
Hey Sam,
I have read several of your insightful posts. Thank you for sharing.
Living in SF, I am sort of paralyzed by oblivion of the opportunities in real estate to build passive income (it seems as though the high costs would impede any hope for cash flow or growth given the increase in real estate prices).
I’ve been holding on to more cash than I should – any ideas on markets or even areas around the Bay or CA (eg. Sacramento) for that mater that offer prospects of real estate passive income and growth – max property value should be $1M. Is a multi-unit better than a single family (obviously, I would need to rent it out to meet the PMI & taxes).
Or are there better avenues to build wealth – goal is freedom to live a simple life. Would be great to get a coffee if you’re up for it. Cheers!
Sam,
Why do you believe that, before Trudeau changed the rules, it was easier to buy Canadian real estate than US real estate? Here’s the excerpt from your post that I am referring to: “If it ever gets as easy to buy United States real estate as it is to buy Canadian real estate”
It was more of an observation regarding the completely out of whack home prices compared to median income in Canada versus the United States. I did not understand how the Canadian government could let foreigners buy so many homes, leave them empty, and make prices so unaffordable for local Canadians.
The reality is anyone may buy and own property in the United States, regardless of citizenship. There are no laws or restrictions that prevent an individual of any foreign citizenship from owning or buying a home in the U.S. But we don’t have an affordability problem as bad as Canada’s, yet.
Those who say RE is priced to high need to consider much of the so called appreciation was really just money printing. When you double the money supply, of course prices go up. In terms of interest rates, as long as the US government remains in debt, interest rates are capped at 3%
I think you are naive, and drastically under estimate the amount of offshore money involved in this. And when it gets to London, NYC, Des Moines, Calgary, it is no longer ‘foreign’, been washed white as… The US is now far and away the largest launderer, and US/Can is the destination for most of it (NZ and London can only absorb so much). It runs to trillions, and no way Biden of Delaware, or Trump of real estate scams, have any intent of having any intent. Would you buy Chinese real estate now? Do you really think Chinese oligarchs are too simple to figure out a way around purchaseable regulators? How about a nice condo development in Minsk? Almaty seem likely to preserve equity? I’ll take Alberta for 500mil, Alex.
Love the cynicism!
“Would you buy Chinese real estate now?”
No. Because we’re talking about foreigners buying up USA real estate, not the other way around.
You can short the U.S. housing market if you want to, but I wouldn’t!
I agree. I have been screaming about foreigners coming to buy US properties and that it should not be permitted.
It went down significantly, as a percentage, during the Trump administration.
I think it’s quite hypocritical and unethical to preach about affordable housing and a lack of inventory in this country while letting wealthy foreigners buy US properties.
Not that the Democratic party cares one bit about this issue.
Well apparently if you buy foreign real estate the country can easily take it back. Russian real estate in Italy is apparently being taken back from rich Russians. What’s to keep the US from taking back Chinese real estate from rich foreign Chinese if we go to war ever with them? That’s a steep and real risk!
I’m with you 100% on this John! Very hypocritical to preach about lack of supply and affordable housing when foreigners buy up houses, and some don’t even live in them full time!
I would support some sort of law/rule about not having houses empty long term to prevent ghost neighborhoods and provide local housing, but that will never happen. The local governments love it! They collect full RE taxes but no kids to educate, minimal services to provide, likely don’t vote, etc.
Does anyone remember the late 80’s when all the complaints were about the Japanese buying up all the real estate?
Now its the Chinese. Next it will be ????
Overall it is great that foreigners want to invest in America.
I think lot of these investors are small time and just trying to park assets out of country and into a stable environment.
There will be a lot of tax lien sales in the future….LOL
In the past, I used to bid on these and a good percent were always foreigners who just don’t pay the tax man.
Remember, you really own nothing. You just rent from the tax man.
I do remember. So the question is, will you let foreign investors punish your or will you take advantage of foreign investors why getting long before they do?
What have you ended up going?
Its so upsetting that the USA government allows this in times of a “housing crisis”. And don’t think that China doesn’t buy real estate in NYC, they in fact buy ALOT in nyc. My parents neighborhood alone has seen a huge influx in foreign investors in the last 20 years and they knock down our single family homes to house 20 people or 4 families in a “two family house”. Also, I read an article recently that new real estate went up in I think Texas and the next day, most of the homes that were built were bought up by Chinese investors! The government really needs to stop them especially when you have millions of homeless and millions more Americans looking for housing. This is a real huge problem. Not only that, it will start taking a toll on the nature we have here in America. We are literally building foreigners houses and knocking down our own nature to do so and nobody sees a huge problem with this in government? When the foreign investors move into the coasts then the American home buyer goes deeper into the usa to look to build more cities and house themselves. This country has lost all control.
I think the US knows they can just steal it all back if we go to war with the Chinese. That’s what appears to be happening with rich Russians who bought foreign real estate.
Having lived in Switzerland, I learned that for any job opening, if there is an candidate that is native Swiss they will beat out any candidate that is a foreigner. Similarly Switzerland massively restricts foreign ownership of real estate.
I did a quick Google search for other countries that do the same: Mexico, Hong Kong, Guernsey, Malaysia, Thailand, Australia, Philippines, Singapore, and Prince Edward Island.
Nothing is more quintessential American culture than the highest level of capitalism and may the richest individual anywhere buy a home in the U.S. if they so desire.
As a result of this phenomenon, there are a few residential neighborhoods here in San Francisco that look like ghost towns. I’ve jogged few a through and it’s eerie when all the houses on the block look completely and permanently unoccupied. Imagine paying all cash for a $2-5M home and then not even living in it or renting it.
Which neighborhoods are you referring to? I am unaware. Didn’t realize you live in SF! What do you do here?
I work in a high technology sector (remote since March 2020) and pondering moving toward bizdev / buy / sell / VC. Recently, I’ve spent a lot of time assessing and evaluating what I value most and what I see myself doing the next 5-10 years. Life is a journey, I suppose? :)
I’ve run through Monterey Heights and the surrounding neighborhoods and seen streets that seem to have several homes that look permanently and eerily unoccupied. It feels different compared to the mansions in Pacific Heights that seem to be unoccupied during stretches but then occupied by their owners (as they may have multiple residences). This is because I notice in Pac Heights that they still have various services including cleaning and security that frequently come in and out of many of the homes there.
Which neighborhood do you think has the highest % of foreign buyers and do they mostly occupy / rent the homes?
I live in Lower Pacific Heights and there are a lot of houses that seem to be unoccupied for a few years.
Uhhhh ohhhh what you heard about Switzerland giving preference to native employees over foreigners is not true at all. Some serious BS.
25.1% of the Swiss population do not own a Swiss passport and most of them make a very fine living in Switzerland.
This article is exactly why I text and email FS to all my friends. Dude is a freaking savant. A tennis and softball playing savant.
Much like George Constanza ( my spirit animal), my gut tells me it’s good that foreign money wants to buy domestic real estate. It’s desirable. But it drives prices up.
In the meantime we have purchased LUCID stock in ROTH IRAs and custodial ROTH IRAs. We are preparing to funnel money into fundrise accounts. Lastly we are looking at Crowdstreet. The rest of our money in equities we are letting ride.
LUCID has been very good so far. We are looking at a long term holding. If and when we derisk from
LUCID is is earmarked for fundrise and Crowdstreet long term.
Be water,
dunning freaking kruger
Good luck! Only time will tell whether foreigners will come rushing in. But based on my experience, it is inevitability IMO.
I generally try to financially insulate myself to the maximum extent possible from cryptocurrency and from China (to name two things I avoid as much as the global economy will permit).
I don’t see them as being worth the risk. I may miss some great opportunities, but experience has shown me that there are always others.
Keeping your wealth where the rule of law generally prevails is worth a lot more than a quick potential profit.
Well, If you believe the rule of law holds the best in the United States, then you can see how attractive US assets are to foreigners.
In south florida you have the Venezuelans (most are already here) , Brazillians, Russians, and a little from everywhere since Miami has that allure.
The condo market in south florida is crazy. The skylines of Miami and Ft. Lauderdale are almost unrecognizable today versus 15 years ago. The building of condo’s stretches for 30+ miles from south beach to Boca Raton along the beach.
“Miami-Dade County’s total home sales surged 142.4% year-over-year, from 4,766 to 11,553. Miami single-family home transactions rose 66.9%, from 2,688 to 4,486. Miami single-family homes have now posted year-over-year sales gains in eight of the last nine quarters, a span of two-plus years. Miami’s existing condo sales increased 240.1%, from 2,078 to 7,067. Miami single-family home median prices rose 31.6% year-over-year, from $380,000 to $500,000.”
From local RE Investment Group October newsletter
Jeff, lucky for us local that have been invested in south Florida real estate since 1988. Is about time that truth is out. We lived in paradise.
You might be right but I have doubts that Chinese investors could have the same influence here as in Canada. Actually, Chinese investors is a misnomer maybe as most of those people are corrupt party officials who came into easy money and contribute zero to the communities where they park their money.
First, Canada is the ideal ground for RE speculation. There is no capital gains if you live for some time in the house and CRA has turned a blind eye to Chinese investors for fears of racist bias as documented by Ian Young , Canadian journalist. Most investors in Canada own $5million dollar homes while declaring no income and even claiming government benefits.
Second, there is zero reporting required by Canadian banks, you can transfer millions, no questions asked. Canada is a paradise for money laundering.
Third, Canada gives easy 10 year tourist visas which is akin to getting permanent residence. I also don’t think it’s going too far in claiming that part of Canadian government structures , especially in BC are captured by Chinese money.
In the US it’s going to be harder in my opinion.
Big transaction are reported by banks to the financial crime unit and they do investigate.
It’s harder to transfer money. Plus, you would have to pay taxes on your worldwide income, it’s harder to own a 5 million dollar home here and declare no income like in Canada, IRS has a long arm and is no joke. Imagine Chinese millionaires declaring their worldwide income to Uncle Sam? They are the kind of people who don’t like paying taxes.
Then, getting residency in the US is much harder.
If you have money, you would have to invest I think about 1 million and create a certain amount of jobs for some years, quite complicated.
Then the most important, while Chinese investors pay cash, the money is usually borrowed in China.
My opinion is that with real estate about to go south in China, things will get dicey.
They might need to sell rather than buy more.
Plus, unless our government and the Fed have decided to let inflation rip and destroy the dollar and social fabric, interest rates might rise and that could spell the end of the RE mania.
I sold my house last month and I am renting now.
I have seen this movie before. But I could be wrong.
You don’t think U.S. politicians could be as swayed by money and influence as Canadian politicians? Money and power are extremely intoxicating. It really takes a special person to go into politics AND not be influenced by money.
The human condition is on the real estate investor’s side. Hence, I plan to just stay long.
If you have a family, how do they fell about selling and moving?
You obviously haven’t been to queens, ny in recent years. Come to visit, you will feel like you are in China. My parents neighborhood is unrecognizable anymore with all the foreign money that has poured into the neighborhood. And every single week, my parents have real estate people (Chinese real estate people) leaving notices on their doorstep. Don’t think that “Chinese don’t have the purchasing power of canada” because they definitely do! Look into how much farmland the Chinese own too here in America. Even your wonderful Smithfield pork products are now in the hands of China. Amc? Not American anymore either! The Waldorf Astoria? Not American anymore either.
Your perspective and emphasis on Chinese residents without regard to whether they are US citizens warrants some concern regarding your motive. Hopefully it is not racial. My US citizen Asian wife was recently screamed at and told by a fellow Costco customer to “go back to China where you belong!”. We were sickened by the hateful racially motivated experience. Hence I raise the question regarding your motive…. BTW Americans have long been buying real estate in Europe and Mexico.
Hi Sam !
Some potential foreigner here in Canada (me!). But actually, I’m not looking to buy a property in the USA.
I think you are wrong at looking at foreign buying for real estate price increase. There may be some of it, but I think it’s a relatively small portion of the buyers.
The real problem, in my opinion, is interest rates. Rates are near zero actually. That’s true that 30-years mortgage are closer to 3%, but it’s possible to get a variable rate for around 1% right now. So it essentially mean you can borrow capital for free.
It’s not an option I would take for myself, but when it comes to bidding up price, we have to remember that it’s always the highest bidder that gets the house. That mean those who are ready to take the more risk, like undertaking a variable-rate mortgage, are likely to buy real estate. As prices go up, their gain becomes even higher and this become a self-reinforcing loop.
I’ve heard many stories in Canada of people buying 10 houses or more in recent years. As long as rates go down and rents go up, they are fine. Whether they will still be fine if rates go up is another story. And the question of whether rates will go up again one day could be another separate discussion…
But my point here is that interest rates are to blame here. I don’t think foreign buyers are a problem at all. They are just the perfect scapegoats for politicians to deflect blame on and distract from their irresponsible monetary policies…
Hope my point of view make sense and can be of any help !
Sounds good to me. What is your current real estate holdings now and your prediction on mortgage rates going forward?
I always think about the marginal buyer bc it is the marginal buyer that pays the price that dictates the market. And only a tiny portion of the total housing stock trades.
Just own my home. No investment property. I thought real estate was too expensive in Canada and that the stock market was a better opportunity to invest. I was right about the stock market, but wrong about Canadian real estate. It keeps going higher and higher !
My view on interest rates is Central Banks will try to raise them (Canada, April 2022; USA, late 2022). But eventually, that will trigger either a crash, a recession or a significant slowdown in the economy. Most likely the latter.
The threshold will be when variable rates (actually 0.25%) exceed the 10-year bonds (actually 1.6%). Pushing variable rates further (above 1.6% or whatever the rate is at that time) would eventually lead to a recession. Banks will prefer to keep cash at the Fed than issuing new mortgages and loans. So, Central Banks will have to back down and lower rates again to 0.25% and provide more stimulus for the economy.
I don’t think Fed funds rates (variable rates) can go higher than 2%. That would be my absolute maximum target. I’m pretty sure they will be at zero again by 2030.
That’s very far from now. Many things can happen since then and prove me wrong. But it’s basically the path rates have followed in Japan after 1987 and in Europe after 2012.
I think USA/Canada is next in this zero-rates trend…
From Calgary, Alberta where I’ve also lived in Vancouver BC for over 8 yrs. I was jockeying between Vancouver and here in last 11 years.
I agree the low interest rates on mortgages, has contributed to home buying Vancouver. Vancouver has a vacancy home tax rate now. I can’t remember the penalty…not living there for past 6 months or something. PLEASE remember Canadians buy up property too in B.C. …as someone knowing employees owning vacation/2nd property in B.C. While yes, some wealthy mainland Chinese like Vancouver/Canada for its clean air, rule to law, food /health security there are also CAnadians who invest in real estate. By the way, Toronto and around that city is also a magnet.
Being a province hit by struggling oil and gas economy, our real estate is alot cheaper than those 2 other big cities…so more Canadians and probably foreign investors. We are only 100 km. east of Banff National Park and Rocky Mtns.
And I think you are wrong! Even 20 years ago in queens, ny, foreign investors have gobbled up the housing market! And this was when rates were at about I think 6 percent to 8 percent. Foreign investors don’t care about the rates. Even in recent years, Canada has risen the rates on foreign investors looking to curb it and it did very little to help it. The problem is with American policies. In my opinion, I think a house should be kept on the market for an American to buy it and give it from 3-5 months for Americans to buy the house, then after 6 months of being on the market, then it should open up to foreign investors. I even cringe at American home investors as well buying up real estate when the homeless crisis is so ridiculously high and when Americans can’t even afford houses. It is proven that wealth is built by home ownership. You can’t have a wealthy nation of renters. It is no good. Also, renters don’t care about how their property looks either and if you are renting from a foreign investor, good luck with finding out who really owns that property. Want to sue the home owner for something? Good luck with that one too!
Sam,
I appreciate how you call balls and strikes as they truly are. While the press is saying the real estate market is overheated, you lay out ample evidence that we may still see even more appreciation.
If my Chinese classmates at my MBA were right, I believe smuggling money out of China if you’re wealthy is something of a national pastime. China just ousted the US for the top spot as far as global wealth, so it’ll be interesting to see how this plays out and how the US government reacts!
To be clear, I do believe U.S. property prices must slow down. However, the foreign real estate buyer is the X Factor NOBODY is talking about.
And if there really is $200B worth of pent up demand looking at buying real estate in the greatest country, then perhaps the party goes on for much longer than people expect.
Foreign buyers have been relatively quiet for 2-3 years. But I believe they will return.
I was looking for a home 967tree4. The real estate selling agent asked the other couples if they lived in Hawaii.
“No, we are visiting from China.”
This was Jan 2020.
Very few signs of life on beachfront houses on Kailua beach. And the signs are minimal- a light left on, a towel on a chair.
Less than 5 times have I seen anyone in a house on Kailua beach that you can view from the public beach.
I think the congress should pass a non citizen property tax surcharge of .5-1%. This would most likely reduce demand considerably from foreign investors. This may lower housing costs a bit for Americans do to lower demand. The government should work to help Americans have financial stability first and foremost. Vote for me :).
Would never work. They would have to pass legislation to require a foreign investor to live in the property for at least two years and pay income tax as well if it was to have any impact.
A property tax surcharge would just trickle down to the renter of the property. So if you want to have working Americans pay even higher rent, this would accomplish it.
Then when local governments get a taste of the surcharge they will see it as a “solution” to their terrible spending and pension decisions and decide everyone should pay it. Look at the history of how the income tax began in the US. Just 1 percent tax on the wealthiest was the pitch to get the common person to support the new tax. Now look at who pays most of the income taxes, it’s not the rich.
I’m a lot of areas local governments are already charging a property tax surcharge on everyone. They do this by calling them “special assessments” because the State “caps” the property tax percentage. They just call it something else and charge whatever extra tax on your property they want.
vacant owners already pay more than 1% in property taxes and that doesn’t dissuade them from buying 2M properties in SF. Appreciation is significantly higher, and the risk remains very low.
I AGREE 100% with this. I will be holding at least for 4 years. And just later see what really happened to the market.
I’m a foreign investor in US residential real estate through URF.AX. It invests in NYC and NJ. I bought in because it trades at a huge discount. It’s been selling off property in recent years trying to get its leverage down….
Long time reader first time commenting. Sam, did you read the article in the New York Times about the crazy real estate market in the US specifically in Austin. If you haven’t it’s called “Will real estate ever be normal again?”. I think it will add an additional perspective to your as always interesting viewpoints. Love so much about your site and your influence on my financial decisions. I use Personal Capital, I have invested in Fundrise and I am actively trying to build my passive income. Keep up all the great work you do. Looking forward to the book.
I was born and raised in China, but have been in the US for 10 years. Initially for school and then grew some roots here. Have to admit that we do have passions of owing land/houses due to scarcity of these in China. Although people talk about avoiding bias, but my recent behavior seems to be pretty consistent with how other people view about “Chinese Investment Philosophy”. I have been doubling S&P 500 return for a few years, but recently dumped some stocks to get a rental property. Money from the stock money seems “not real” to me even though I have been doing good there.
Are you talking about Chinese who don’t live in the US? Also there is no capital restriction in Hong Kong. My wife’s family is able to wire money to the US from HK without any restrictions.
I once had a Chinese owner as a next-door neighbor. I never saw the owner.
Great article and I agree that foreign buyers are coming for the US coastal cities! Any predictions on how this will spill over and impact heartland real estate?
The China buyers are also getting something of value that Americans no longer appreciate: birthright citizenship for children born on U.S. soil. Come visit, pregnant relatives!
Additionally, real estate is a great protection against the coming Inflation Typhoon. Kidding, it is already here! Never mind the Yuan, U.S. currency value is being destroyed. This is why all those scary articles about Blackrock Investments, purchasing unbuilt housing developments in bulk, were fashionable earlier in 2021. There is so much money sloshing around in Pension funds and Sovereign and Institutional entities, they have to put it somewhere to protect the purchasing power. “May you live in interesting times!”
Long live TINA! (There Is No Alternative)
We definitely take for granted being born I’ll be able to live in the United States, that’s for sure. It’s hard to know how good you have it until you live abroad.
Would consider following those above our pay grade. If companies are pulling out of China, that indicates restrictions will remain in place or even worsen. China is also headed toward a war footing in regards to Taiwan. Capital controls tend to increase during such periods.
On the west coast in Silicon Valley, foreign buyers were buying home unseen and we are taking $3-$6M range. Not sure if it’s gone done. The other thing I want to ask is in this data what is a company registered in US but owned by a foreigner or owned by us based family of foreigners buy the properties on their behalf. Wonder how much of that is happening that maybe hiding the foreign money that could be still moving into the country.
What years are you talking about?
Has your position changed on Alibaba since your last post where you picked up some stock? I am riding that pony with you (that is if your still in :)
I plan to hold for 2-3 years. Remind me then!
Oh God ! Some “paper handers” here …. Haha !
This is a permanent holding for me. Waiting for the first dividend declaration someday in the coming century …
Ah I didn’t now about the capital tightening that took place in China. That makes a lot of sense now because the amount of real estate Chinese investors were buying in SF was insane before. I remember going to open houses and there would almost always be a van full of foreigners that would show up to view the properties. And when asking the realtors about offer dates and interest they would often say there were expecting X number of overseas offers.
The country is also trying for a Zero COVID objective, which means stricter lockdowns. At this point, seems like we should all just get used to living with the virus.
The lack of freedom in China and the desire for more freedom is likely very high, especially those with capital to invest.
Hi Sam, first thank for all great articles Can you advise what is the best instrument to invest in USA properties if she/he can not afford to buy a house. I see that only REITs can be used for the moment but we know that they are volatile as stocks.
Besides publicly-traded REITs and real estate ETFs like VNQ, there are privately traded REITs with low minimums. For example, Fundrise, one of the largest real estate crowdfunding platforms, recently lowered its minimum investment to only $10. That’s pretty huge for the average retail investor who wants real estate exposure.
I want to allocate my capital to trends. And real estate is an obvious, positive long-term trend IMO.