Foreign investment in U.S. real estate tops $44 bln

Foreign investment in U.S. real estate increased to $44 billion (43.12 billion Euros) in 2001, up from $38 billion (37.24 billion Euros) in 1997, according to a recent study released by the National Association of Realtors.

The study shows that the huge flow of overseas funds into the United States real estate market provides benefits to American consumers in the form of job creation and cheaper mortgage rates for homebuyers.

'Demand for U.S. assets by foreign investors surged between 1997 and 2001,' said Gail Lyons, chairman of NARÂ's international affairs committee. 'This funds flow has helped to create jobs both through direct investment in businesses and commercial real estate and has provided cheap funding for domestic businesses to reinvest. Foreign investment has exerted downward pressure on interest rates, which has helped the record home sales levels we have been observing.'

The study, 'Foreign Investment in U.S. Real Estate,' pays particular attention to the impact of foreign investments on the U.S. economy over the past five years and shows sharp increases in foreign holdings of U.S. real estate during that time. Globalization and the desire by investors to diversify their portfolios have contributed to the growth in the real estate sector.

NAR Chief Economist David Lereah said, 'United States real estate offers foreign investors diversification of their investment portfolios so that their assets are not fully tied to the health of their domestic economy.'

Lereah noted that income-producing properties in the United States generally offer higher yields than similar investments abroad as well as an inflation hedge. 'Over the last 10 years, the value of existing residential properties in the United States has risen by a compound annual average of 4.2 percent as compared to 2.7 percent inflation.'

According to the study, foreign direct investment in U.S. real estate increased dramatically over the period of 1997-2001, from $38 billion (37.24 billion Euros) in 1997 to $44 (43.12 billion Euros) by late 2001, an increase of nearly 16 percent in the five-year period.

JapanÂ's consistently high investment share over the past five years underscores its important role as an investment source, the study showed. The Netherlands, Germany, Canada, Latin America and the United Kingdom all play strong roles, and the influences of Germany, Canada and Latin America in the U.S. market have increased noticeably since 1995.

The study indicates that the growth of the U.S. domestic real estate market benefited from substantial investment from abroad, much of it from investors searching for assets with superior but stable returns. The continuation of this trend will depend on the performance of foreign economies, creation of capital for new investment, and whether foreign economies are doing well in comparison to the U.S. economy.

According to some international economists, Germany, the Netherlands, United Kingdom, Japan and Latin America all look to perform much better in 2003 than in 2002. However, for a variety of geopolitical and economic factors, the United States is expected to lead the next global expansion.

'For international investors looking for a stable investment with good earning potential, U.S. real estate and financial markets both remain the global standard,' Lyons said. 'NAR resists restrictive laws and regulations and supports policies that facilitate free movement of all forms of investment and free market principles that have served so well historically,' she said.

(source: National Association of Realtors9

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