Wednesday, January 20, 2010

Foreign Investors in Real Estate Again Pick U.S.

Results of the 18th annual survey conducted among the members of the Association of Foreign Investors in Real Estate (AFIRE), show a dramatic increase in the number of respondents identifying the U.S. as the country providing the best opportunity for real estate capital appreciation. This is the third year the survey was conducted by the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business. Professor François Ortalo-Magné will present the survey results at the group's winter conference in New York in February.

The survey was conducted in the fourth quarter of 2009 among the association’s nearly 200 members. Survey respondents own more than $842 billion of real estate globally, including $304 billion in the U.S.

In this year’s survey:

  • 51 percent of respondents identify the U.S. as providing the best opportunity for capital appreciation.
  • This compares to 37 percent in 2008, 26 percent in 2007, and 23 percent in 2006.
  • The last time respondents’ perceptions for U.S. real estate were this strong was in 2003, when the percentage once again reached 51 percent;
  • the U.K. emerges as the second-best country for capital appreciation, receiving 30 percent of respondents’ votes. In third place, China receives 10 percent of respondents’ votes.
  • two thirds of respondents plan to increase their investment in the U.S. in 2010 compared to 2009.

Among U.S. cities representing the best investment opportunities, survey respondents firmly select Washington, D.C. and New York, receiving much stronger scores than third-place San Francisco. This year, Boston makes a significant climb into fourth place, and Los Angeles falls one spot into fifth place.

For more survey results, read here.

1 comment:

  1. i daresay this isn't as positive as it seems.

    the most recent developed world real-estate bust within a balance sheet recession took place in 1990s japan. by 1995, real estate in japan was crawling with international investors. at that point prices nationally already were off 40% and actually generating a decent positive carry. many commentators believed the bust was over, and a heavily stimulated economy was posting 4%+ annualized GTDP growth.

    then the hashimoto government was installed in 1996 with a mandate to cut the government deficits run as a result of fiscal stimulus for all the same reasons we hear again today. but of course the private sector was still desperately attempting to repair its balance sheet and private sector loan demand was net negative (again just as today). hashimoto's plan to run off stimulus spending was nevertheless put into place in 1997, and the resulting collapse in aggregate demand and cash flows promptly sent the economy into a multiyear deflation that aggressively deteriorated rents.

    in the end, positive carry on property was annihilated and housing prices -- already having fallen 40% -- fell another 53% by the end of 2003, making for a aggregate peak-to-trough decline of 72%. i believe the max loss (which came later on following another budget-cutting effort) was 87%.

    a similar dynamic was evident with leveraged assets in 1937 in the US.

    long story short: asset valuation outcomes are all dependent on continued, sustained fiscal stimulus large enough to offset the private sector desire to save and repay debt. be very careful about "affordability" or price-to-rent at this early date. we haven't even corrected to significant positive carry yet -- most "investors" are still speculating on capital gains rather than collecting surplus rents over financing costs. and now rents are accelerating to the downside as ARRA runs down past its peak spending rate; housing is not coincidentally softening. the US has a very long run of private sector balance sheet repair ahead, and episodes of "fiscal responsibility" are likely to result in deflationary periods that will brutally affect leveraged asset values -- which means particularly housing.

    anyway, that's my view. thanks for the blog!