According to The Wall Street Journal, the most popular story on WSJ.com on Monday was a report about how Lennar (LEN) may apply for a $1.7 billion loan from China to help finance major multifamily housing developments in San Francisco.
Valued at $10.5 billion in total, the projects to reincarnate two former Pacific Coast naval bases as mixed-use residential and commercial real estate have run aground over lack of funds. As a result, Lennar appears poised to open the door to China owning an interest in a big chunk of prime U.S. beachfront real estate. And that’s just the start.
The Selling of America
Turns out, while Americans are still reeling from the aftershocks of our housing bust, a whole lot of people from around the globe are eager to take advantage of the “bust-ortunity” in cheap American homes. The National Association of Realtors reports that over the 12 months ended in March, nearly 9% of all real estate purchases in the U.S. (by dollar value) were made by buyers abroad. In some markets, real estate professionals are seeing foreign buying at rates more than twice as fast. One real estate agent in Chicago, for example, observed that 20% of the deals he’s closed so far this year involved buyers from Canada, Australia, and elsewhere.
It’s only natural that this news would scare some people. It raises echoes of the “Rising Sun” period of Japanese economic dominance back in the 1980s, when Japanese firms flooded the American market with bags of cash, buying up everything from Columbia Studios to the Pebble Beach golf course to Rockefeller Center itself. What’s different this time, though, is that it’s not just one country’s megamillionaires doing the buying. The whole world has embarked on a U.S. shopping spree.
International purchases of U.S. real estate surged 24% over the past 12 months, with plenty of buyers coming from China, true, but also Canada, Mexico, India, and the U.K. (Indeed, as it turns out, Canadian buyers outnumber Chinese by more than 2 to 1.) But few of these countries bear any resemblance to the dominant Japan of the ’80s. To the contrary, Mexico, India and the U.K. each have significant currency weakness problems of their own, so this is anything but an attack on a “weak U.S. dollar.”
What it is is a recognition that there are pretty incredible values available in U.S. real estate today. According to the Journal, international buyers are focusing their attention in particular on hard-hit real estate markets in Florida, California, Arizona, and New York (but also sunny Texas) — places where the U.S. housing market boomed particularly hard in the last decade, and places where the discounts to past prices now look particularly compelling.
Is It Bad for America?
On one hand, this kind of buying frenzy is likely to rub a few people the wrong way. “The foreigners are coming,” they’ll declaim, with all the jingoistic outrage this implies. It probably doesn’t help that a lot of Americans are out of work these days, can’t get a mortgage, or are underwater on their current homes. So even if they agree that there are good deals in housing to be had, they can’t participate.
That has to grate.
But on the other hand, it’s hard to get too upset over the prospect of some $82.5 billion (and counting) in foreign capital being poured into the country in a time of economic weakness. More so when you learn that unlike so many buyers back in the 1990s and early 2000s, these are not buy-and-flip purchasers we’re talking about.
To the contrary, the Journal reports that 39% of the people buying up all this real estate intend to keep the homes as their primary residences. Add in the 23% who are buying vacation properties, and you’ve got a strong majority of good, responsible homeowners arriving in town. Folks who are going to keep the paint fresh and the lawns mowed — and consequently boost the property values of their neighbors.
In short, if we absolutely, positively must sell America to foreigners, these are exactly the foreigners we should be selling to.
Fool contributor Rich Smith does not own shares of any company named above.
Tagged: Australia, California, Canada, Chicago, China, Finance, foreign investment in US real estate, ForeignInvestmentInUsRealEstate, home buying, HomeBuying, housing bust, HousingBust, India, Japan, Lennar