Overseas funds flood U.S. market

November 12, 2002

Foreign-held property tops $44 billion, up 16% in last five years

Inman News Features

Foreign investment in U.S. real estate increased to $44 billion last year, up nearly 16 percent from $38 billion in 1997, according to a recent study released by the National Association of Realtors.

The study revealed that the increased flow of overseas funds into the United States real estate market has resulted in an increase in jobs and lower mortgage rates for home buyers.

"Demand for U.S. assets by foreign investors surged between 1997 and 2001," said Gail Lyons, chairman of NAR's international affairs committee. "This funds flow has helped to create jobs both through direct investment in businesses and commercial real estate and has provided cheap funding for domestic businesses to reinvest. Foreign investment has exerted downward pressure on interest rates, which has helped the record home sales levels we have been observing."

The study, "Foreign Investment in U.S. Real Estate," highlighted the impact of foreign investments on the U.S. economy over the past five years and showed sharp increases in foreign holdings of U.S. real estate during that time.

Also, globalization and the desire by investors to diversify their portfolios have contributed to the growth in the real estate sector. "United States 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," said NAR Chief Economist David Lereah.

Lereah noted that income-producing properties in the United States generally offer higher yields than similar investments abroad as well as an inflation hedge. "Over the last 10 years, the value of existing residential properties in the United States has risen by a compound annual average of 4.2 percent as compared to 2.7 percent inflation," he said.

The study showed that Japan's consistently high investment share over the past five years underscores its important role as an investment source, while the Netherlands, Germany, Canada, Latin America and the United Kingdom all play strong roles, and the influences of Germany, Canada and Latin America in the U.S. market have increased noticeably since 1995.

The study indicated that the growth of the U.S. domestic real estate market benefited from substantial investment from abroad, much of it from investors searching for assets with superior but stable returns. The continuation of this trend will depend on the performance of foreign economies, creation of capital for new investment, and whether foreign economies are doing well in comparison to the U.S. economy.

Copyright: Inman News Service

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