Some analysts are making the case that it’s time to look outside the U.S. at stocks in non-U.S...
Give Me Your Tired, Your Rich
07/02/2012 11:15 am EST
Despite tough times, many of those who have the means buy property and other assets in America, simply because our nation really is a safe haven, writes MoneyShow editor-at-large Howard R. Gold, also of The Independent Agenda.
As July 4 approaches, Americans are anxious about the economy, despise Congress, and can’t work up much enthusiasm (to say the least) about either presidential candidate. Investors are still avoiding US-based stocks like the plague.
But one group of people truly is bullish on America, and they’re putting their money where their mouths are. Buyers from all over the world are snapping up US real estate the way prospective brides yanked discount wedding gowns off the racks at those Filene’s Basement sales of yore.
Yes, some of the buyers are the super-rich, like the Russian billionaire who allegedly bought an $88 million New York penthouse for his daughter. But others—upper-middle-class professionals and small business owners—are scooping up condos, townhouses, and single-family homes. They’re buying in suburbs as well as cities. Nearly 40% are using their new homes as primary residences.
In a recent report, the National Association of Realtors said international sales hit $82.5 billion in the year ending 2012, up from $66.4 billion the previous year. Canadians were by far the most frequent buyers, representing one out of every four dollars of international real estate purchased. Chinese nationals, Mexicans, Brits, and Indians followed.
Half of all foreign purchases were made in four states: Florida (which got 26%), California, Arizona, and Texas. International buyers have helped revive the once-moribund real estate markets of Phoenix and Miami. And most of them pay cold, hard cash.
US real estate can be a great investment for foreign nationals. The real estate crash that began several years ago has produced some extraordinary bargains.
But although their purchase decisions are primarily economic, the NAR and two real estate executives I spoke with said international buyers view the US as a safe haven for their money, governed by the rule of law and respect for property rights. Nearly a third of foreign purchasers viewed US real estate as a “secure investment.”
It’s what we all learned in social studies classes, and for these people, it’s very real.
“Pure investment isn’t necessarily the main driver of the decision to buy houses in America,” the Los Angeles Times reported. “Rather, it’s foreign buyers’ desire to protect their money from the ravages of their own economies.”
- Read why Howard thinks US stocks are still investors’ best bet.
Foreign nationals make nearly 40% of all residential property purchases in Miami-Dade, and buy more than half of all condominiums and waterfront properties, said Ron Shuffield, president and CEO of Esslinger-Wooten-Maxwell (EWM) Realtors in South Florida.
Prices have risen, he told me, but they’re still “pretty far below where they were four years ago.” For instance, at an average price of $400 per square foot, new downtown condos in Miami change hands for about a third of what comparable properties would cost in Sao Paulo or Rio de Janeiro, according to Bloomberg BusinessWeek.
International purchasers have sparked a big revival in Miami, where condo backlogs have shrunk from a whopping 63 months four years ago to a mere five months now.
Miami and South Florida have long been the gateway to Latin America and a haven to refugees from strife and tyranny in countries from Cuba to Nicaragua to Haiti. Now a new generation is finding South Florida a secure place to invest their money.
“There’s nowhere safer than the US,” Shuffield said.
Well-heeled Latin Americans are buying in New York City, too, along with Chinese, Russians, and Europeans who are getting increasingly wary of the Eurozone crisis, said Pamela Liebman, president and CEO of The Corcoran Group, a New York-based real estate firm.
International buyers represent about 15% of residential property purchasers in the Big Apple. (They’re also investing in US commercial property.)
For the super-rich, owning an apartment on Fifth Avenue or Central Park South is a totem of success. And yet for these buyers, Manhattan real estate, which other Americans view as stratospherically priced, is pretty reasonable compared with, say, London or Hong Kong.
And it’s not just the .001% who are jumping in. Liebman said Chinese nationals and others are scooping up $1 and $2 million apartments for their college-age kids, with plans to rent them out eventually as income-producing property.
More than economics is involved. They’re looking at New York real estate, Liebman says, “as a very safe place to put their money.”
“That’s what we hear: I feel comfortable investing in the US,” she told me. Rule of law and property rights, she said, are not a sideshow for her firm’s international clients. “That’s one of the unspoken drivers of all this buying,” she said. “If people didn’t have that, they wouldn’t be buying.”
- Read about the politics behind Chief Justice Roberts' decision to uphold health care reform at The Independent Agenda.
These buyers can sleep well at night knowing their assets will not be seized by a populist demagogue like Hugo Chavez of Venezuela, or the latest whim of the Chinese Communist Party. In New York, or even Miami, Brazilian professionals don’t need armored cars to protect their children against kidnappers, and Mexicans can keep their families safe from the horrific drug war in their own country.
“Latin Americans don’t trust their banks or governments,” Miami developer Martin Melo told Bloomberg BusinessWeek. “Of course, they can hold cash or gold and get robbed. If you buy a place in Miami and rent it out, it’s like a safe.”
And these days, more and more wealthy Chinese don’t trust their government, either—or China’s economic “miracle.” Businessman Steven Loh told The Wall Street Journal last week that “there is a strong desire among Asian high-net-worth individuals to allocate, say, 10% to 25% of their wealth to US assets.”
- Read why Howard thinks China’s power struggle is a very big deal for investors.
For Canadians, of course, the purchases are economic. Canada itself has become a haven, and Chinese buyers have driven up housing prices in Vancouver and Toronto. Canada (and the UK and Australia) offer the same rule of law and property rights as we do, which is why international buyers find these countries attractive, too.
These days you hear nothing but whining and complaining from Americans, who blame the 1%, the government, Wall Street, the Federal Reserve, President Obama, President Bush, and Congress for all our problems.
But Americans are living in an echo chamber. Sure, we’re going through tough times, as I’ve written frequently in this column. But we’re also doing better than other developed economies in a world where growth is pretty hard to find.
And we have due process, transparency, and property rights, and a 200-year-old Constitution with checks and balances to back them up. That is the true American exceptionalism.
Sometimes it takes an outsider to help you appreciate what you have. People from other countries who could afford to buy anywhere in the world but choose to invest here may be teaching us a valuable lesson, if only we’d stop shouting at each other long enough to listen.
Happy Independence Day!
Howard R. Gold is editor at large at MoneyShow.com and a columnist at MarketWatch. Follow him on Twitter @howardrgold and catch his political coverage at www.independentagenda.com.
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