For many individuals, the single largest “investment” of their lives will usually be their home, as opposed to investing stock, bonds, mutual funds or certificates of deposits (CD’s). This is because purchasing real estate is less risky than investing in the stock market and can be more rewarding than changing CD interest rates.
US investment property has been enticing foreign investors since the 1970s, and has become extremely attractive since 2008 based on the weakening of the US dollar. Many financial institutions in this country are reluctant, if not somewhat skeptical, of providing mortgages to foreign investors who want to finance real property here in the US.
Another issue involving some risk is seen when the foreign investor decides to sell the property and return to their home country. There is the potential that the taxes on the sale of the property will not be collected. To avoid this, the US Congress passed legislation known as the FIRPTA of 1980, or the Foreign Investment in Real Property Tax Act. This applies to foreign investors who have purchased US property and are going to eventually dispose of it. It also applies to foreign investors who own shares in holding companies that own a substantial amount of real property in the US.
As the global economic landscape has shifted considerably these past few years, foreign investors have seen a growing investment opportunity where US real property is concerned. As early as the beginning of 2008, foreign investors were already seeing apartments, hotels, office buildings, shopping centers and warehouses as excellent investments. As a result, foreign investors now see US real estate as a secure and stable investment. Falling interest rates and a weakening of the US dollar are also seen as benefits of investing in real real estate here in the US.
According to NAR (the National Association of Realtors), by the end of March 2010, US real property sales to foreign investors totaled $66 billion. As of the fiscal year that just ended in March of 2011, that total had increased to an incredible $82 billion. These figures not only include foreign investors with permanent residency but also those individuals from other countries that have taken up a part-time residence here in the US for a minimum of six months.
So what is it that makes US investment property such an appealing investment for individuals living in foreign countries? To answer this question, consider the current landscape throughout the global stock markets, including the NYSE. The recession in the US not only impacted the stock market here, but there was a ripple effect throughout the world markets as well. When you compare investing in real property to investing in the different markets, real property is usually the safer investment.
When you consider the tax breaks that have been created, it is easy to see how the government supports and encourages foreign investments in US real property.