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Why is U.S. real estate still attractive to Asian investors?
By Juwai, 19 February 2021
The pandemic has positively affected every sector, but U.S residential real estate has been remarkably resilient and rebounding.1 The real estate sector has been highly supportive of the country's economic recovery - 2020 was a record-breaking year for the U.S. housing market.
To this day, Asian investors still strive to enquire American real estate - so what is driving them to acquire these properties?
1. Long term fixed-rate mortgages
Housing prices and mortgage rates gyrate over time, but one constant investor and homeowners can count on is a fixed-rate mortgage.
By owning a property in the United States, be it a brownstone in New York or a suburban house in Ohio, investors realize how good they have it compared to the rest of the world. With a fixed-rate mortgage, where it offers predictability and stability, they have an interest rate that remains the same throughout the loan2 . In other words, having the ability to lock in low-interest rates and payments for 15 to 30 years is a huge benefit of investing and buying real estate in the USA.
2. Positive cash flow
As a politically stable country that welcomes foreign investors, the USA presents one of the most exciting opportunities in decades for investors.3 Over countless generations, Asian investors have made the property the cornerstone of their wealth creation strategy.
By investing in favourable cash flow properties, the rental income exceeds the costs of buying, owning, and managing the rental. The positive difference between the two numbers is the profit that goes into the investors' pocket from U.S. properties.
"You, as a real estate investor buy a rental property in the neighbourhood of the. It costs $219,000, and you finance it with a 30-year fixed mortgage with an interest rate of 4.42% with a typical 20% down payment for rental property.
This adds up to a monthly mortgage payment of $883."
Many Asian investors have implemented real estate cash flow to acquire their fortunes. Many of them started with small, multi-unit properties. Eventually, they worked their way up to large commercial buildings, ensuring their family's continuous financial stability in many years to come.
3. Good value on their investments
In contrast to cities such as London and Auckland, U.S. property is affordable - even at its most expensive rate. With such desirable prices, Asian investors have an excellent start to internationalizing and diversifying their portfolio, assets and livelihood.4
Some wealthy beach property markets still have property selling for $200 per square foot, with properties getting even cheaper in inland markets. If you are used to paying $500,000 plus for a one-bedroom condo, or $1,000 a week for a room, a $50,000 single family, or even $350,000 single family seems like a steal.
In addition to protecting their wealth, buying international real estate also allows them to earn higher returns and enhance their tax strategy – or a simple desire for a second residence or passport out of their investment.
4. Security and opportunities for Asian investors' future
While Asian buyers are snapping up stable investments, they are also looking for a job and educational opportunities.5 Despite the U.S. education system being an expensive financial venture, graduating from world-renowned universities could grant their children a great job opportunity. Asian buyers are firm believers in this conclusion, and it is not a coincidence that they are the ones who display more will to buy a house for a student.
Finally, it is important to refer that geography and cultural similarities are also among the main reasons why foreigners look for the U.S. Canadians, British and Mexicans, often move to the U.S. since they have family or friends in place.
On the other hand, they are closer to the country, which means that they also have a trustful person in place in investment, making it a lot easier in property management.
Sources: 1; U.S. Housing Market Sales & Price Forecast 2021: Will It Crash or Boom?, 2; Fixed-rate mortgages: What they are, how they work , 3; Buying U.S. property in the year 2020, 4;The benefits of owning international real estate, 5; Why foreign buyers invest in the U.S. residential real estate?