Politics

America for Sale

Real estate spending spree, but not by Americans

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In Miami, the city of warm ocean breezes and stucco pastels, foreigners flashing lots of cash are snatching up hot commodities. Not cocaine. Not meth. We’re talking high-end houses and condos. 

That’s a big, pleasant shift from the 1980s, when drug cash flooded city streets, when it was more Scarface than Sotheby’s. But the influx of real estate buyers from Asia, Europe and South America reduces inventory, hikes prices, and undoubtedly squeezes out some American buyers. Yet beyond issues of affordability and availability, the rush of foreign buyers may also harm American economic interests or even national security.

According to the Miami Association of Realtors, more than four in five foreign property buyers pay in cash.

“They pay a lot more than domestic buyers,” explained Lynda Fernandez, senior vice president of public relations for the Miami Association of Realtors. For Americans, “our median price is $250,000 for a single-family home… [for] foreign buyers, they’re willing to pay a median price of $440,000,” she noted. That’s almost twice what Americans are hoping to pay.

Nationwide, international buyers paid a record $104 billion for American property between April of 2014 and March of 2015.

Nationwide, international buyers paid a record $104 billion for American property between April of 2014 and March of 2015, according to the National Association of Realtors. Most purchasers hail from Canada, Mexico, India, Britain and China—with the Chinese the biggest U.S. real estate investors by far, both in terms of number of homes bought and the dollar amount thereof. They spent $28.6 billion (combining China, Hong Kong and Taiwan) on American properties last year; the year before it was $22 billion, which itself was a spike of 72 percent from a year earlier. The bulk of those Chinese purchases were on the West Coast, in the Los Angeles region and near San Francisco.

But such purchases happen in many other American locales as well. In late June, for instance, Jack Ma, the founder of Chinese web-commerce powerhouse Alibaba, bought more than 28,000 acres in New York’s Adirondack Mountains, paying a whopping $23 million for the property.

Back in Florida, 72 percent of brokers in Miami-Dade and Broward counties reported working with a foreign buyer in 2015, according to the Miami Association of Realtors. By contrast, the national average is 28 percent, according to the National Association of Realtors.

For international buyers, acquiring a single-family dwelling or duplex in Miami is a solid and safe investment.

Foreign buyers now own 26,500 units in the Miami region. For international buyers, acquiring a single-family dwelling or duplex in Miami is a solid and safe investment.

Venezuelans, Russians or Chinese don’t have to worry about political instability when they invest here as they do back home.

Frenchmen, Brits and Germans can buy property more cheaply in Miami than they can in Paris, London or Berlin.

For our home sellers, this is good news, of course. But for domestic homebuyers, the participation of international clients sharpened competition in the local housing market – and might help make that market unaffordable for them.

Paying the full asking price for a home has become the standard, Fernandez said.

1245_thumbDomestic buyers no longer have the leverage to haggle with the real estate agents about adding wooden floors or granite counters for the same price, she said.

Worse, “they can’t have conditions” on the contract to protect themselves from hidden problems, Fernandez said. Those conditions are normally used to shield buyers from the risk that the house contains leaky pipes or violates local building codes.

“This is the second time in a month that my wife and I have lost our full-price bid on a home in L.A. to a Chinese buyer paying cash,” an exasperated 32-year-old marketing executive and married father told us. “It is just so frustrating, and it’s happening to my friends, too.” 

To be clear, foreign buyers aren’t always to blame for declining home-ownership rates among the less-wealthy. Fresno and Stockton in California are two examples where lower-income Americans are being edged out of housing not by foreigners but by higher-income Americans. But do we really want extreme versions of gentrification at the hands of Chinese or Russians whose governments send weapons to our enemies and threaten our allies?

“This is a threat which may be difficult for Americans to understand, because of our historical experience,” said Alan Tonelson, who for 18 years tracked trade and national security issues for the U.S. Business and Industry Council. “Since 1776 we’ve overwhelmingly been masters of our own economic fate. … Much or the rest of the world is quite aware that when foreign entities own a significant percentage of our economy, they also gain significant influence of your politics and your public policy.”

Foreign ownership of our real estate might not be as disturbing if it weren’t compounded by foreign government ownership of U.S. debt, financial assets, and agriculture.

Tonelson, who now is proprietor of the RealityChek blog, said foreign ownership hasn’t come close yet to dangerous levels, but the upward trend is noticeable and at least a little disturbing.

“I’m not sure we’re going to like it very much,” he deadpanned.

Foreign ownership of our real estate might not be as disturbing if it weren’t compounded by foreign government ownership of U.S. debt, financial assets, and agriculture—which some critics believe endangers the nation’s “food security.” In 2104, for example, the Missouri Farm Bureau put out a statement warning that foreign ownership of agricultural land might “compromise our national security and domestic food production capabilities.”

Of course some foreign investment in the United States is hugely beneficial to American families. When Nissan or BMW decides to build cars here, employing U.S. workers and suppliers, it’s a very good thing. Nevertheless, the concurrent trend lines of foreign ownership of American debts, assets, homes and agriculture raise real questions, among some analysts, about threats to long-term American interests.

“The U.S. government does have a system for screening prospective foreign investments that may have security implications,” said Tonelson, the trade and security analyst. “But the Committee on Foreign Investment in the U.S., or CFIUS, is chaired by the Treasury Department, which has as an institutional priority the encouragement of more trade, not national security. The committee might reject, say, a foreign bid for a company that manufactures drones; but there are a lot of critical components, made by smaller companies, that go into drone technology, and it’s must less likely that CFIUS would think to reject a foreign entity targeting one of these smaller companies.”

We’ve officially gone from “Buyers beware” to “Beware of the buyers.”

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