Oct 2011 26

Expansion of Canadian Investments In U.S. Real Estate Markets

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1 US Dollar by Miran Rijavec 1 US Dollar by Miran Rijavec

The current down-turning trend of home prices in the U.S. has been encouraging for foreign investors. The decreasing value of the U.S. dollar on currency markets played a major role in the increase of foreign investment activity on U.S. real estate market.

According to a recent Scotia Economics (the analytic branch of Scotiabank Group) Global Real Estate Report, the average price of a U.S. existing home in terms of the Canadian dollar (CAD$) has fallen more than 35% over the past six years. The impact of the CAD$ appreciation is especially vivid in comparison with the mere 20% average price decrease in US$ terms: a US$57,000 drop from US$275,000 to US$218,000.

There factors largely contributed to the Canadian real estate spree on U.S. markets. The amount of Canadian purchases stand for up to 25% of net foreign purchases of U.S. residential property in the twelve months to March 2011. As the U.S. National Association of Realtors stated, Canadians, including temporary visa holders and recent immigrants, bought US$19 billion worth of U.S. property over this short period. This represents the major share among all other foreign property investments. The increase of Canadian, Asian, and Latin American interest in the U.S. real estate market balanced out the decline of purchases coming from Europe.

Aiming Florida

Beach house Florida by Britt Reints Beach house Florida by Britt Reints

Although it might seem that foreign purchases account for a share of annual U.S. existing home property transactions, this isn’t even worth mentioning since we have to look at the situation on the regional level to find a real impact. Arizona and Florida are experiencing the main inflow of Canadian buyers, who are buying vacation houses in these warm parts of the U.S. However, they are also aiming for rental and purely investment-oriented properties.

According to the Scotia Economics Report, “In the 12 months to June 2011, foreign non-resident buyers purchased US$13 billion in Florida property, representing just over 25% of all property purchases in the state.” This boost helped in balancing a drop in residential investments. Home prices in popular real-estate markets like Miami and Tampa are still around 50% below where they used to be in times of the highest price-ranges.

Similarly to the combined U.S. market, Canadian purchasers account for the major share in foreign non-resident transactions on the Florida market. This share takes up to 39% of them, climbing up to $5 billion in Florida property in 2010 only. Canadians invest mainly in resort areas, choosing condominium properties over the other options (57%).

In spite of the abundance of Canadian purchases, Canadian buyers tend to buy low-priced properties. According to the Scotia Economics Report, up to “two-thirds of buyers paid less than US$200,000 for their Florida property, with a median purchase price of only $152,000.”

Despite the positive effects of foreign investors on the U.S. real-estate market, the U.S. fails to provide easier access to financing for them. Even for well-qualified borrowers with a significant downpayment, it is quite complicated to obtain financing to purchase such properties, resulting in nine out of ten buyers purchasing a property in cash. If you’re considering purchasing U.S. property, you’ll have to take estate and income taxes into consideration as well.

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