Economy Watch: Foreign Investors Say U.S. is Prime for RE Investment

The U.S. real estate industry should expect an increase in foreign investments in 2016, with interest mainly focused on major metro markets.

U.S. real estate is popular among investors from every part of the world, and there are strong indications that investor interest is going to accelerate in 2016. Sixty-five percent of foreign investors in U.S. real estate indicated they plan to increase their investment here in 2016, according to the recently released 24th annual Association of Foreign Investors in Real Estate (AFIRE) survey.

Also, about 30 percent of foreign investors expect to maintain their U.S. real estate portfolios. Combined with those who expect to increase investment, and the total is 95 percent, they are as nearly unanimous as these kinds of sentiment get. In 2015, the combined total of increasing and standing pat was also strong, but not quite as strong, at 90 percent.

The top U.S. cities in order of preference among members of AFIRE are New York, Los Angeles, San Francisco and Washington, D.C., with Seattle and Boston tied for fifth. Foreign purchases of U.S. real estate have ballooned since the recession, coming in at $87.3 billion in 2015, up from less than $5 billion in 2009, according to Real Capital Analytics. New York real estate attracted a bit more than a quarter of last year’s total.

The strength of overseas investment in U.S. real estate came in spite of the tax imposed on such investors under the 1980 Foreign Investment in Real Property Tax Act (FIRPTA). In December, President Obama signed a $1.1 trillion spending measure into law, and one of its provisions eased the tax on foreign investment in U.S. real estate under FIRPTA. That might augment the already strong wave of foreign investment in the coming years.