For the real estate industry of the United States, foreign investment is considered as a major source of investment. Due to the emerging growth of this industry and the high potential of the US economy, many investors are ready to invest in this particular market. If the past records are to be believed, it can be stated that in 2013, 7% investment in the overall real estate sector of US was made by the foreign investors and this was worth approximately $92 billion (Gentry, 2018). Most of the foreign investors were belonging from countries like Canada, Mexico, UK and more.
The major reasons which are responsible for increasing interests of the investors for investing in the US real estate sector are discussed below;
Market stability and economic strength – there was a time when the US real estate sector was weak and the housing crisis was at the top level. However, that phase has passed for the country. Foreign investors have always been attracted towards investing in the US economy for the fair legal system, comparatively low tax percentage, advanced technology and outstanding infrastructure and more. Currently, the real estate sector of US is also a major reason behind the increasing enthusiasm of the foreign investors to make investments in this country (iCompareFX, 2018). It is a benefit for the foreign investors that the government of US does not charge any additional fee for foreign investors to make investment in the real estate sector. Hence, unlike many other countries, in US, the investors can be able to make investments with better degree of freedom.
The economic stability of US is also a significant reason behind the high enthusiasm of the investors. The real estate investors are highly interested due to the opportunities they observe in this economy where overall population is increasing and demands for houses is also increasing. Countries like Dubai, China, Singapore where the real estate market is very much volatile with very high prices of properties, are becoming interested in investing in US. Additionally, the strength US dollar is also a popular reason behind investing in the real estate sector of this country (iCompareFX, 2018) .
Availability of financing – some of the popular US banks are able to offer financing to the foreign investors so that they can make investments properly in the real estate industry of the country. Hence, the foreign investors are not always required to opt for regular mortgages and they can be able to receive safe loans for property investment. Hence, the availability of finance is one of the major attractions for the investors to become interested towards the US real estate industry. However, the foreign investors are required to make minimum 30% of the purchase price as down payments in order to be eligible for getting loans (iCompareFX, 2018). The credit scores of the investors is also examined by some banks before approving them the loans. These eligibility criteria for receiving loan differ from state to state or even bank to bank for the foreign investors. Hence, all these factors should be taken into consideration by the foreign investors.
Additionally, many financial managers also suggest that the investors should select only those banks for loan, which are having global operations. These are the financial institutions which are experienced with different types of complex operations and transactions. Hence, they can easily make proper analyses of the credit position of the investors in the global platform and can accordingly provide them with finances (iCompareFX, 2018). However, paying for foreign properties through cash is a popular way for foreign investors. The purpose is to avoid complexities of the foreign exchange market.
Benefits of taxation – the third major reason why more and more foreign investors are inclined towards the US real estate market is because of the tax benefits offered by this industry. It has been discussed previously that the foreign investors of real-estate industry are required to invest excess down payments compared to the regular investors. However, many investors actually consider it as a benefit. For example, if a foreign investor pays a down payment of 40% to 50% of the purchase price of a property, then he would not have to pay any taxes on the rental income of the same property for the upcoming 10 years or more (iCompareFX, 2018) . Additionally, some relevant expenses like depreciation, property tax and more can also be deducted from the tax incomes of the foreign investors. Hence, the tax benefits offered by the real estate industry of US is often a decision making factor for the foreign investors.
However, there are some complications which might be discussed here. When a foreign investor is investing in the US real estate market, then the tax laws of more than one country can be applicable. Hence, in spite of various tax benefits offered by US, the tax liabilities of the investors can increase automatically. Additionally, to avail the tax benefits offered by US, the foreign investors are required to file their tax returns within stipulated time. The US government charges significant percentage of penalty on those tax payers who are unable to pay taxes within time.
Positive cash flow – one important reason behind investing in the US real estate sector is acquiring positive cash flow. Many of the foreign investors who are investing in the real estate sector of the country are unable to estimate their tax liabilities by themselves (Wilson, 2019). Hence, they deposit certain percentages of investments in the bank to acquire positive cash flow.
Value appreciation – it is one of the fundamental reasons behind investing in the real estate sector of this country. Due to high demand in the real estate sector, it is a certain fact that the price of houses in this industry will continue to be high in the upcoming years and accordingly, the investors will be able to increase their profitability by spending their money in this industry. The investors are able to earn long term gains by spending in this industry (Wilson, 2019). Many investors also hold these properties for better returns.
The analyses of the above part of the report discuss that investment in the US real estate industry is highly profitable. It has also been mentioned here that some of the major reasons behind the increasing enthusiasm of the investors include tax benefits, availability of finance, economic strength of US economy and more (Gentry, 2018). While concluding this discussion, it must be stated that the big cities of US are the most popular destinations for the foreign real estate investors. California is one of the most attractive destinations for the foreign real estate investors and LA is currently the most popular city where more and more foreign investors are investing to acquire benefits (Gentry, 2018). Many finance specialists also suggest Long Beach area to be a popular destination for investment as it offers similar benefits like LA and is also an emerging area. It is also suggested to the real estate investors to perform detailed analysis on the housing property they are willing to buy as risks and uncertainties related to such properties vary from city to city. Hence, it is important to adopt proper safety measures before spending the hard earned money of the investors. As far as countries are concerned, it is expected that in the upcoming years, countries like UK, Japan, Canada, China will invest more in the US real estate industry (Gentry, 2018). The institutional investors of South Korea are also showing interests in the US real estate industry and their presence may also be observed in the future.
Gentry, E. (2018). Council Post: Why Foreign Investors Love U.S. Commercial Real Estate, And Why More Will Follow. Retrieved from https://www.forbes.com/sites/forbesrealestatecouncil/2018/05/30/why-foreign-investors-love-u-s-commercial-real-estate-and-why-more-will-follow/#7ae69e735090
iCompareFX. (2018). Retrieved from https://www.icomparefx.com/benefits-of-investing-in-the-us-real-estate-market-for-foreigner-investors/
Wilson, C. (2019). 3 Benefits Of Investing In US Real Estate – 3 Benefits Of. Retrieved from https://www.3benefitsof.com/3-benefits-of-investing-in-us-real-estate/