You might not have known exactly when the stock market was going to head south but the fact that it would was fully predictable. And the wealthy saw it coming. With fixed income investments (saving accounts, CDs, etc.) at historic lows and the equities (stocks) sliding downward once again, those with money to invest are again turning to residential and commercial real estate.
A recent survey released by a NYC investment bank shows that 77% of millionaires already directly own real estate and 33% plan to directly invest more during 2014. Another 23% plan to shift out of stocks and into real estate investment trusts. Still others say they are planning to become sources of private equity for loans secured by real estate. The fact that these knowledgeable individuals are moving out of stocks will continue to place downward pressure on the overall stock market.
The clear indication is that people that know how to make money are turning to real estate for the near term. Last year saw real estate prices jump significantly. While 2014 isn’t likely to see the same increases, it will be a much less risky haven for investors than other alternatives.
U.S. millionaires are also watching foreigners invest in U.S. real estate. Another important economic development has been the slowing of growth or even downturns in economies of developing countries. Particularly China. However, the economic declines extend to other major Asian players such as Singapore and South Korea.
Foreign investors are also shifting to U.S. real estate as a secure investment. This moves their wealth out of a risky developing domestic economy and into a U.S. dollar economy. Foreigners still consider the U.S. dollar to be the world’s reserve currency.
American investors see this as a sign that it will help maintain the value of their property investments. It also creates liquidity in the domestic real estate market when there are ample buyers looking to buy.
Not to generalize too much but BigSur Partners, a Miami-based wealth-management firm, is looking for real estate where there is likely appreciation of property value and a stream of rental income, as well as better control and supervision over the investments. So far, these include office properties in Pittsburgh and Boston, multifamily residences in Texas, and some industrial buildings in key locations. BigSur clients are also asking for lending opportunities.
Private equity lending could drive more traditional buyers into the real estate market. Since banks continue making it difficult to borrow, increasing private equity in the market becomes a good alternative for first time buyers and others wanting to buy up but they don’t have a lot of equity in their existing homes.
While real estate might not be the charming investment it was in 2013, it remains among the most attractive going forward. Although the U.S. economy exited the Great Recession four years ago, growth has been slow. Most economists think the U.S. economy will remain in slow growth mode until at least 2017.
As the wealthy move money into real estate they are keeping a close eye on interest rates. The consensus is that if interest rates increase more than a percentage point or two, the slow economy coupled with rising interest rates will put a drag even on real estate values and liquidity. These people are also choosing their investments carefully. Multiple family residences are still popular as are self-storage units in the commercial sector. However, few are investing in retail sales property as values continue to be pressured downward by both lack of consumer confidence and the ever-increasing purchase from online retailers.
Buying a home has long been considered a quintessential part of the American dream. Owning…