Property | International

Investors seek safe haven in US real estate

As the world worries about a double-dip recession, more and more foreigners look for multi-family properties

  • Agencies
  • Published: 00:00 October 28, 2011
  • Gulf News

New York: Foreign capital has piled into big, multi-family apartment blocks and residential homes in the US in the past year as international investors seek a safe haven in increased American demand for rental property.

In absolute terms, the dollar volume of foreign purchases of multi-family properties to September 2011 has exceeded 2010's full year total by 73 per cent, according to data by Real Capital Analytics. Ben Thypin, director of market analysis at RCA, said he expected the year-on-year gain to be close to 100 per cent.

"Investors are seeking less risky assets whose value won't be as volatile as many of the other investment opportunities available in this turbulent global economy," he said.

Foreign investment represents 5.8 per cent of all multi-family purchases, up from 3.7 per cent in 2010, according to RCA.

Unlikely haven

A weaker dollar, international market volatility and a continuing foreclosure crisis have combined to create an unlikely safe haven for international investors.

"The foreclosure crisis has spurred the multi-family property rental market. If people cannot qualify for a mortgage on a home, they will most likely have to rent," said Stephen Collins, international director at Jones Lang LaSalle, the global real estate services company.

"Foreign investors have become interested in multi-family as an investment type and are becoming more and more vested in the asset class by developing these buildings with local and regional partners. Asia-Pacific and Middle East investors are especially interested," he added.

Foreign investors, who can include wealthy individuals as well as foreign pension funds, insurance companies, sovereign wealth funds and real estate companies, have directly invested nearly $4.2 billion (Dh15.4 billion) in the US multi-family property market since the start of 2009, according to RCA.

Analysts say the market share of such property owned by foreigners is significantly larger as the data do not include indirect investment through local intermediaries, which is difficult to track.

Werner Sohier, senior portfolio manager at PGGM, the Dutch pension fund manager, said US multi-family properties provided a secure income yield as more people were choosing to rent.

Hot spots

"It is a solid and defensive investment strategy," he said. "There are strong long-term demand drivers and limited new supply. Apartment rent growth will outpace the economic recovery. However, one has to be very selective as to where and how to invest."

New York City and Washington have proved to be hot spots since the downturn.

Gary Malin, president of Citi Habitats, a New York-based real estate broker, said: "The average Manhattan apartment rented for $3,331 [a month] in September of 2011. Rents have increased approximately ten per cent on average since the financial crisis."

Report: prices rise again

US commercial property prices rose in August for a fourth straight month as financially distressed properties made up a smaller share of transactions, according to Moody's Investors Service.

The Moody's/REAL Commercial Property Price Index advanced 2.4 per cent from July. It's up 7.2 per cent from a year earlier and 15 per cent from its post-peak low in April, the New York-based company said in a report.

Moody's doesn't see ‘significant' price gains in the near term as loan originations based on commercial-mortgage backed securities slow and demand for vacant space continues to ‘languish', the company said.

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