By Shane McGinley
Region bucks a global trend which saw international buyers in the US drop 2.1% during 12-month period
The number of Middle East buyers investing in US real estate increased by more than six percent in the 12 months to March 2012, bucking an international decline of around two percent, according to official US industry figures.
The overall number of non-US buyers that purchased US real estate during the period declined 2.1 percent to 206,192, according to the latest figures from the US’s National Association of Realtors (NAR).
According to NAR analysts, the Middle East made up 2.3 percent of international buyers in the US for the 12 months to March 2011, while this rose to 2.5 percent during the year up to March 2012.
This indicates that the Middle East bucked the global trend, with the number of buyers increasing from around 2,424 in the period to March 2011 to around 2,577 in the period to March 2012, an increase of 6.3 percent.
“With prices still up to about 30 percent below the 2007 peak in many locations throughout the US and indications that prices are again on the rise, Middle Eastern based buyers with cash to invest have been looking at the US as a value proposition,” said Richard Bradstock, Senior Consultant at IP Global, a Dubai-based real estate firm which specialises in overseas investments.
“Buying in major US cities where supply is tight and demand is strong from overseas and local buyers will give a prolonged period of growth in prices,” he added.
While the NAR report showed that overall international buyers declined 2.1 percent year-on-year in the 12 months to March 2012, the value of sales rose 24 percent to US$82.5bn as US real estate prices began to recover. The NAR report did not give any percentage breakdown for the value of property bought by Middle East investors.
In total, international buyers from 51 countries were included in the report, with five countries (Canada, China [including Hong Kong], Mexico, India, and the UK) accounted for 55 percent of transactions. While there was international activity throughout the country, four states (Arizona, California, Florida, and Texas) accounted for 51 percent of the purchases by overseas buyers.
“Manhattan, New York and central San Francisco remain the areas which have the lowest investment risk profile and we believe will have the highest demand over the next few years. The cheap borrowing rates and very strong rental markets come together to give these areas a very compelling investment story,” said Bradstock.
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The US property market continues to tip up real value, which in a well regulated market is worth its weight in gold to investors. It is however, understable why Middle Eastern investors are mainly ignoring their domestic property markets, because prices still need to come down to sustain a true transactional recovery or at least stay where they are and even maintained at current levels they fall short of value.
Regulation too remains an issue, while it has improved, it certainly does not match that of the US. The fact that so many devlopers have defaulted on their obligations of sale, leaving a large contingent of investors without a property or reimbursement, without taking any official action is not encouraging.
Sure if you're looking to escape to a better life and you can get a visa with your real estate, some of the murkier market history will not matter much. However, for savvy investors, the poor history elevates the risk factor immensely, in the absence of consumer bias.