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Foreign Investors Bullish on U.S. Real Estate Investment

new Jason stats graphic - June 2015Foreign investors remain bullish on U.S. real estate investment, according to a new survey that was conducted before Congress passed federal tax reforms that likely will  provide even greater inventive for foreign investment.

The annual survey of the Association of Foreign Investors in Real Estate (AFIRE) found that 64 percent of respondents intend to invest more in U.S. real estate in 2016 while 31 percent plan to keep foreign investment in the U.S. at the same level as last year, according to a CoStar News report.  None of the respondents said they planned to decrease U.S. real estate investments.

Globally, New York took the top spot for foreign real estate investment for the second year in a row, outranking London, while Los Angeles leaped into third place, up from 10th last year, in the survey of the 200-member AFIRE, which represents institutional real estate and other organizations with a combined estimate of more than $2 trillion in real estate assets under management, CoStar reported.

Seattle joined the top five U.S. cities for the first time, tying with Boston for fifth place, according to the news report.  Reflecting the downward spiral in oil prices that played a key role in Houston’s real estate and general economic slowdown, Houston dropped from the third position to the 11th position in the latest survey.  CoStar also reported that San Francisco dropped from second to third, although rental rates and property prices have continued to appreciate rapidly.

Washington, D.C., which tumbled from 10th to 15th place last year, placed well both globally and among U.S. markets, ranking 8th worldwide and fourth in the U.S., up from fifth in 2015.

The AFIRE survey was conducted late in the fourth quarter 2015 before Congress enacted wider tax exemptions for foreign investment in the U.S. under the Foreign Investment in Real Property Tax Act, or FIRPTA, a 1980 bill that imposes income tax on foreigners disposing of U.S. real estate interests, CoStar said.  The tax reforms, which were adopted on December 18 as part of the federal appropriations bill, exempt qualified foreign pension funds and their entities from taxation under FIRPTA.

A key executive at AFIRE told CoStar the FIRPTA changes had been under considered in Congress for some time and foreign investors did not necessarily expect them to pass in 2015.  The changes will provide foreign investors a welcome relief from certain taxes and, in time, further incentive for U.S. real estate investment, James A. Fetgatter, chief executive officer of AFIRE, told CoStar.

Fetgatter noted that the most recent survey demonstrated strongest level of confidence in years about foreign investment in the U.S., even without the FIRPTA changes.

“We have a clearly recovering real estate market and the dollar is increasing. There are not a lot of roadblocks to worry about, like for example the immigration crisis in Europe, stock market fluctuations and a possible recession in China, and bubbles in the Brazil real estate market,” Fetgatter told CoStar.

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