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Residential Real Estate Threatened by Foreign Investors


As the number of foreign investors scooping up residential real estate in the United States increases, experts point to risk for a negative impact. In fact, many professional realtors feel that some US government officials have completely overlooked these risks that if not addressed could cause harm, something that average American is completely unaware of.

Continuing Recovery

According to numerous sources, the housing market is experiencing recovery but not at the predicted pace. As of June this year, recovery was 16 percent lower than the 2008 peak. In the meantime, unusually high demand for residential real estate is being seen in certain cities.

The influx of cash presented by foreign buyers is driving real estate prices in select urban communities up. Although investors come from all over the world, the main group is from China with buyers spending literally billions of dollars on US real estate.

Money Transfers

In 2014, Bloomberg exposed a way in which wealthy Chinese buyers could transfer billions of dollars overseas. Prior to that, questionable mechanics of moving cash out of China were outlined by The Wall Street Journal. As reported, rich mainland Chinese could take funds to Hong Kong and then on to other areas of the world with the majority ending up in favorable destinations to include the United States but also Canada and Australia.

There is now a rule whereby the maximum amount of Yuan is capped so no more than $50,000 could be converted within a year. The rule also banned Chinese investors from making direct transfers of currency. Even so, billions of dollars are smuggled out of by wealth Chinese.

Of all foreign investors, China is at the top of the list. Other countries include Mexico, Malaysia, Saudi Arabia, the Russian Federation, Philippines, Nigeria, India, and many others. What has US realtors concerned is that a significant amount of Chinese money is designated for the purchase of US real estate.

International home buying activity was profiled by the National Association of Realtors throughout last year that showed purchases of real estate in the US by international investors for a 12-month period that ended in March 2014 total sales volume was more than $92 billion. Of that, close to 50 percent was attributed to nonresident foreigners. As explained by Antos, if the trend continues, over 35 percent of residential real estate in the US over the next decade will be owned by foreigners.

Red Flags

While it is expected for international investors to buy commercial property, when large sums of money are going to residential real estate, it raises red flags. For one thing, this could easily push the cost of homes to a point of making them unaffordable for the average American, something already being seen in Denver, Seattle, New York, Dallas, San Francisco, and others.

The other thing to consider is that as more money comes from rich Chinese and other international buyers who snatch up residential real estate in the US, the middle-class American could be forced into a position of being financially subservient to these investors once they move to the country.

Most professionals in the real estate industry strongly believe that the US government needs to take immediate and proactive steps to control the influx of foreign funds being used to buy residential real estate. Although this should apply to all countries, it most definitely needs to be geared toward Chinese buyers.

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