April 28, 2018

International Investors Impacting Short-term rental market

While there has been backlash recently about the effect short-term rental platforms have on the long-term rental market, recent trends with overseas investments may be a bigger contributor than short-term rental platforms to the lack of availability we have been seeing in recent years.

With the strengthening of the US dollar and economic instability in other countries, the United States real estate market has become very attractive. “From Washington state to Miami, real estate property is being purchased in increasing numbers from overseas buyers with money in a strong but slowing global economy,” Post and Courier noted. These foreign investors often come with all cash instead of mortgage loans, making them attractive to sellers and agents. They also bring a different perspective than local buyers; unlike American investors who put most of their properties into the rental market, many of these properties are being left vacant because investors are purchasing them for their pure cash value. “Given the relative liquidity of U.S. real estate and ongoing geopolitical uncertainty elsewhere in the world, the U.S. office sector and primary markets will continue to see the bulk of foreign investment activity,” The Investor predicted.

 

However, what was once largely limited to office and high-end residential properties is now broadening to include multi-family dwellings as well as single homes and apartments. For example, many Chinese investors have started looking to the U.S. residential real estate market as an alternative market, and they frequently are able to pay more than U.S.-based buyers. Foreign non-residents spend $537,000 on average, while buyers located in the U.S., including immigrants, spend $278,000. Focusing on the residential market instead of the commercial property market appears to be growing in popularity, as Asian investments in U.S. commercial real estate have been in decline since 2016. Chinese commercial investment in particular has dropped 55%, with spending falling from $16.2 billion in 2016 to $7.3 billion in 2017.

According to HousingWire, a 2017 survey of residential real estate purchases from international buyers by the National Association of Realtors showed that foreign buyers purchased 284,455 residential properties between April 2016 and March 2017, which is a significant 32% increase from the number of residential properties purchased by overseas buyers in 2016. This amounts to $153 billion’s worth in residential property, equivalent to 10% of the dollar volume of existing home sales. This is an increase of 49% from 2016’s $102.6 billion and surpasses 2015’s $103.9 billion as the new survey high.

 

Nearly half of all overseas sales were made in three states: Florida, California and Texas. “Miami’s property market is now totally dominated by international buyers and occupiers, with just 20 percent of the market being attributed to domestic U.S. buyers,” Realty Biz News reported. These investors are predominantly from South America - Colombia, Argentina and Brazil, RBN noted.

What does that mean? Properties are being bought that could be placed into the rental market but are being left vacant as they are used to hedge against the economy in these foreign countries. Numbers for 2017 and early 2018 have yet to be fully published, but the rental market will be affected as long as properties that have already been purchased by foreign investors

Chang Kim

My name is Chang and I manage operations at Voyajoy. I've been in the short-term rental space for the last four years and have an operations career dating back 20+ years. I've learned about vacation rental management the hard way and have seen how quickly this industry has changed in a very short time. My objective is to use this experience and knowledge to give our valued clients big competitive advantages.

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