How Much of the Real Estate Market Recovery is Due to Foreign Investors?

05/22/2014 08:16 PM (CST)

dollarsThe answer to this question depends on who you ask. Some, like Phil DeMuth of Forbes, credits most of the recovery to foreign investors. In his recent article he goes on to say that “This currency expatriation provides the illusion of a hearty US  real estate recovery but it’s largely a bi-product of global money laundering.” In other words, the influx of foreign capital is what really keeps the US housing market afloat.

Forbes’s assessment may be harsh, but it’s not completely far from the truth.
Recently, it was reported that for the first time, the Chinese have become the biggest foreign buyers of apartments in Manhattan, real estate brokers estimate, taking the mantle from the Russians - whose activity has dropped off since the unrest in Ukraine and the imposition of sanctions against Russia by the United States.

According to Reuters, wealthy Chinese are pouring money into real estate in New York and some other major cities around the world, including London and Sydney, as they seek safe havens for their cash and also establish a base for their children to get an education in the West.

Reuters asked five of the top real estate brokerages for their ranking of foreign buyers in New York City. The Chinese ranked first in both volume and value of sales in all their estimates. Opinions differed on just how the Russians, Europeans and South Americans stacked up next.

There are no official figures collected on the national and ethnic backgrounds of home buyers because of U.S. fair housing laws, designed to protect against discrimination.

Miami is another great example. In 2013, 62% of closed sales were all cash compared to 64.3% the previous year. All-cash sales were 45.6% of single-family home closings and 73.7% of all condominium sales. Since nearly 90% of foreign buyers pay cash, this reflects Miami’s position as a top market for foreign buyers. Nationally, cash sales are approximately 30% of closed sales.

Since Miami has such a large percentage of international buyers, cash sales locally are more than double the national average.

So even ir may not be true for areas in the Midwest, a large part of recovery along both costs is definitely fueled by foreign investors flush with cash; which, of course, raises legitimate questions whether the recovery is “real” and how much of its benefits are felt by Americans?