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Posted by: Prashant Gopal on January 28, 2008
Many Americans are anxious about the real estate market. But foreign investors see U.S. apartments, hotels, shopping centers, warehouses and offices as good investments, according to a new survey.
The weak dollar has made the American real estate market look attractive to foreign bargain hunters.
The U.S. rose to the top of lists of the “most stable and secure” countries for real estate investment and the countries with the best opportunity for appreciation, according to the 16th annual survey of the Association of Foreign Investors in Real Estate (AFIRE)released Jan. 28. New York City and Washington D.C. were the top two global “Cities for Foreign Investors’ Real Estate Dollars,” according to the survey.
China is also growing in popularity. Shanghai rose to No. 5 from No. 9 a year ago on the list of top cities for foreign investment. And China is now No. 2 on the list of countries with the best opportunity for appreciation.
The survey of 200 AFIRE members was conducted in the fourth quarter 2007. AFIRE members hold $700 billion of cross-border real estate, including $230 billion in the U.S.
Here are the survey results:
Top Five Global Cities for Foreign Investor’s Real Estate Dollars
1. New York; up from #2 in 2006
2. Washington, DC; up from #4 in 2006
2. London; down from #1 in 2006
4. Paris; down from #3 in 2006
5. Shanghai; up from #9 in 2006
Other significant changes:
• Singapore, up to 6th place (tied with Tokyo) from 24th place in 2006
• Sydney, up to 9th place from 15th place in 2006
• Hong Kong, up to 10th place from 11th place in 2006
Most Stable and Secure Countries for Real Estate Investments
1. U.S. – 56% of vote
2. Germany – 11% of vote; up from #3, with 4.5% of the vote in 2006
3. United Kingdom – 8.8% of vote; down from #2, with 11% of the vote in 2006
4. Australia – 8.8% of vote; up from #5, with 3% of the vote in 2006
5. Japan – 5.3% of vote; with 3% of the vote [tied with Australia], unchanged from 2006
Countries Offering the Best Opportunity for Capital Appreciation
1. U.S. – maintains ranking; increases percentage of votes to 26.2% from 23% in 2006
2. China – moves into 2nd place from 3rd; increases percentage of votes to 21.4% from 14.8% in 2006
3. India – falls from 2nd to 3rd; decreases percentage of votes from 18% to 16.7% in 2006.
4. Russia – moves from 5th to 4th; although percentage of votes decreases to 7.1% from 8.2% in 2006
4. Mexico – moves from 7th to 4th (tied with Russia); increases percentage of votes to 7.1% from 4.9% in 2006
Top U.S. Property Types
Within the U.S. property market, the most dramatic change was a total reversal of investors’ preferred U.S. property types, with every property category shifting and, most dramatically, office properties falling into fifth place and retail properties rising to first.
1. Retail – from 5th place in 2006
2. Hotels – from 3rd place in 2006
3. Industrial – from 4th place in 2006
4. Multi-family – from 2nd place in 2006
5. Office – from 1st place in 2006
Top U.S. Cities
The ranking of the top five U.S. cities echoed respondents’ choices in 2006:
1. New York
2. Washington, DC
3. Los Angeles
4. San Francisco
Climbing up the ladder:
• Las Vegas from 16th place to 8th
Appetite and Opportunity: U.S.
The resilience of the U.S. real estate market among seasoned international investors is underscored by the timing of the survey, conducted during the fourth quarter of 2007, after the much-publicized credit crunch and sub-prime mortgage crisis. In spite of this news:
• On average, survey respondents say that slightly more than 50% of their real estate planned acquisitions in 2008 will be allocated to the U.S. While the percentage allocated to the U.S. remains roughly the same as 2007, the actual dollar amount is expected to increase by 16%.
• Eighty-five percent of survey respondents say that recent fluctuations in the dollar have not prompted them to increase their U.S. allocation.
• The percentage of respondents saying it was “very difficult” to find attractive U.S. real estate fell to 22.8% from 37.5% in 2006. This represents the smallest percentage expressing this sentiment since 2003.
• For the first time since 2004, a measurable number of investors declared investing in the U.S. to be “somewhat easy.”
• For the first time in years “distressed assets” are mentioned by AFIRE members as a new strategic focus.
Appetite and Opportunity: Global
While U.S. real estate continues to hold sway over real estate in other countries, its dominance is being challenged by other global opportunities.
• On average, survey respondents say they plan to increase global spending on real estate from $1.394 billion in 2007 to $1.692 billion in 2008, an increase of more than 20% (compared to a 16% increase in planned U.S. acquisitions).
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.