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THE
APPEAL OF U.S. PROPERTY TO FOREIGN INVESTORS
The benefits of foreign investment in the United States
are widely recognized. U.S. real estate provides foreign
investors with a diversification option that has a
solid return without the volatility of stocks.
U.S. real estate is attractive to foreign investors for
a number of reasons including its diversification,
openness, size and selection. U.S. real estate is
a good hedge against inflation and generally has a
high return on investment. Real estate is a safe investment
in what otherwise can be a rocky marketplace. Here
are some additional reasons.
- Diversification: U.S. real estate offers foreign investors diversification
of their investment portfolios so that their assets
are not fully tied to the health of their domestic
economy.
- Openness,
size and selection: Foreign investors are attracted to the United States
because of the availability of real estate as an
investment and the ease of investing. The U.S. market
contains a large supply of investment-grade real
estate. It also has a relatively high turnover rate
and easy exit option. In addition to the wide variety
of investment options, the United States does not
restrict or scrutinize most properties purchased
by foreigners, as do other countries.
- Inflation
hedge: Real estate investments, both residential and commercial,
are less exposed to the effects of inflation than
many other investments. In fact, the value of residential
property in the U.S. tends to rise over time, more
than the rate of inflation.
- Establishment
of market share presence: Because the United States is the world’s largest and
most open commercial real estate market, foreign
firms and individuals want to establish market share
here. They do this in a variety of ways, one of
which is direct investment in properties.
- Safe
asset: Certain U.S. investments are viewed as safe alternatives
compared to what at times are more risky foreign
assets. During periods of economic uncertainty in
foreign markets, funds are often re-directed into
U.S. assets that have low default rates such as
U.S. Treasury bonds, high grade corporate bonds,
U.S.-backed mortgage securities, and U.S. real estate.
- Liberalization
of financial markets: In recent years, countries have allowed exchange rates
to float. Many of the world’s industrialized nations
have removed most controls on capital and restrictions
on foreign participation in domestic financial markets.
The U.S. economy offers an advantage to investors
who want to be certain that they can get their money
back after investing.
- Technological
change: Telecommunications, computing and information technology
now permit almost instantaneous transmission and
processing of information around the globe. This
capability lowers financial transaction cost and
fosters a financial environment in which capital
flows rapidly from one country to another, seeking
the highest yield. As a result, foreign investors
have greater and almost immediate access and can
respond quickly to opportunities to invest in the
U.S. real estate market.
A
recent survey of foreign investors in real estate
revealed the following:
“Which country provided the best opportunity for capital
appreciation?”
Forty nine percent responded the United States followed
by Japan with 16 percent of the votes.
“Which country provides ‘the most secure and stable’
real estate investment”?
Fifty eight percent responded the United States followed
by the United Kingdom with 18 percent.
“Which country has the best ‘risk’ adjusted potential
return from real estate investments”?
Sixty seven percent responded the United States followed
by the United Kingdom with 8.2 percent.
It is felt that the fundamental soundness of the U.S.
market will continue into the future. Foreign growth
will also continue as the U.S. market improves. In
the long term, the return of new flows of foreign
investment into the United States will continue to
spur the real estate market toward new heights.
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