According to an article in the Wall Street Journal, demand from overseas buyers for property in the United States is weakening and is apparently being undermined by rising real estate prices combined with a strong US dollar.
This is quite different from last year when many experts were predicting that demand from foreign investors would continue as the US is seen as being a safe haven especially when there are uncertainties about the global economy. Just last June it was reported that Chinese buyers were the top foreign buyers of US real estate, overtaking Canadians.
Now however there is increasing evidence that interest from foreign buyers has been declining. This is likely to be due at least in part to the increasing prices in many of the cities most popular amongst foreign buyers which include San Francisco and New York. The affordability of these properties has declined due to the stronger dollar.
When you factor in the exchange rate in January, the median price of existing US homes increased by 67% for a buyer from Brazil compared to just a year earlier. For Canadian buyers the prices increased by 27% and for Chinese buyers by 14%. Additionally, China is taking a tougher stance towards buyers who are trying to evade the annual $50,000 limit on the amount of money that can be transferred out of the country. Chinese buyers often get round this requirement by transferring money through family members, friends or employees but in January the country began monitoring these types of transactions more closely.
At the moment real estate experts are unsure as to whether Chinese demand for US property will fall as much as demand from other countries. Even though the Chinese economy has slowed, it still has growth of more than 6% and although some Chinese residents have lost money on the stock market, this could also tempt them to diversify their investments.
Although foreign buyers represent a small percentage of the overall housing market in the United States any declines could have a disproportionate effect on demand for certain properties in certain areas. For example it could affect luxury homes in California as well as high-end condos in places such as Manhattan and Miami. As there is currently a housing shortage in the US, real estate experts point out that any decline in foreign demand for real estate could be helpful. Falling demand could result in homes becoming more affordable for US buyers.