From npr.org:
Investors from Asia are taking advantage of housing prices that have plummeted in recent years, buying foreclosures and short sales at below what it would cost to build them.
Kevin Chu’s Hong-Kong investment firm owns property in Las Vegas, but he’s never seen any of it. So his first visit to the U.S. is to inspect the houses in Las Vegas.
In the past 18 months, the firm he works for, The Creations Group, bought up distressed homes all over the U.S. — including 13 Las Vegas houses at fire sale prices.
Tracy Bennett, the local property manager, is driving Chu to see one of his firm’s houses that has just been renovated.
She points to a disaster of a house that’s clearly vacant. Blue graffiti cover the garage. Trash is piled in the yard. Before anyone can say anything, Bennett laughs.
“I’m kidding,” she says.
But it is a reminder of the bleak housing reality here, where foreclosure rates are more than three times the national average. Thousands of bank-owned properties that sit empty. Thankfully, for Chu, his real house down the block is in much better shape.
It’s a modest one-story house. The firm bought it for $55,000. At the height of the market, it could have sold for more than $200,000. Inside it’s clean, with fresh paint. It’s ready for a tenant.
“It looks very good, much better than I expected,” he says. In fact, the U.S. housing market as a whole looks much better than expected to Chu’s boss, Danny Lim.
“In some places the types of prices that we are getting, I think it’s you know, once in a generation, perhaps once in a lifetime kind of opportunity,” says Lim, who was in Miami looking for more property.
Andy Chu, a local real estate agent, says he is advertising in the Asian newspapers. He points out the strong rental market in Las Vegas means houses here can quickly become income-producing properties.
“We let them know, hey look, U.S. is a good place to invest,” he says.
Andy Chu’s clients from Asia are now a quarter of his business, and he wants more. They’re good customers. They often will buy several properties and pay in cash, which means he doesn’t have to spend months waiting for financing to be approved.
“From a business perspective, you can get paid in four days or get paid in six months,” he says.
The 2012 strategy for the Las Vegas chapter of the Asian Real Estate Association of America is to help local Realtors get even more international business through new Web tools and networking opportunities.
“If you are a homegrown product how do you network with someone in Canada? How do you work with someone in China, Vietnam or Taiwan? It is very hard. That’s the reason why our association is trying to bridge that gap,” explains Joseph Lai, the association’s chapter president.
There aren’t reliable data to know just how many properties in Las Vegas are selling to out-of-country buyers. Local Realtors say the bulk of their international business is coming from Asia and Canada. Lai says these buyers are helping the local housing market recover.
“International investors, we see them as absorbing a lot of the inventory,” empty houses that otherwise might be left vacant, he says.
“They are going to come in, make them income-producing properties, and then they are going to fix them up, get them into livable shape, get them rented out,” he says.
There is a backlog of tens of thousands more foreclosures expected to roll onto the Las Vegas market in the coming months. So that means soon there will be a lot more empty houses for eager investors to buy up.
Teriffic! An unlimited greater pool of fools!
how does international investment firms buying US property at bargain basement prices make them “fools”?
A houses value depends on the buyers perception of money.
When I was in Europe It was very clear that different cultures viewed money differently. Also it was very clear that some cultures viewed housing in different ways. In Paris people lived on top of each other in the older parts of town like in and around New York. In northern Germany there’s a mix of post ww2 high-rise apartment complexes and regular houses you would see in the US. In Ireland you had many small farm type houses. In the UK London specifically people all lived on top of each other.
The people living on top of each other in different parts of the world might view a big foreclosure house in Vegas as a palace selling for a bargain.
if you are buying at below replacement cost how can you lose? Its like buying a dollar for 22.5c! (except you can only spend the dollar in 10 years
I’m not sure I would invest in a market like Vegas, just like I wouldn’t invest in a market like Detroit. Just because it’s cheap or less than replacement cost doesn’t mean you’ll be able to find a willing and able tenant to make it cash flow. Vegas is really overbuilt it could be a long time before the job market catches up to the available SFHs.
Lots of international investment is centered around a combination of BOTH our reduced prices and our reduced us $$$.
My major client is an investment bank in Asia. They can buy US $$’s at an all-time low price. In theory they are getting 2 Us $ for their 1 foreign currency. They used to get 1 Us$ for each of their foreign currency.
Thus, with housing down 40% AND their currency up they can buy a house with 20% of foreign currency it used to take to buy that house.
Use Canada as an example. It used to take 2 CA$ to buy 1 US$. Thus a house in PHX at the peak of $500k would have been $1mm CA$’s. Now that house is $250k and it only costs them $250k CA$’s.
In our US mind that is a 50% drop.
In a CA$ view that is a 75% drop ($1mm down to $250k).
If prices rise half way back up to $375k in some period of time, and the currency reverts back 50% towards the mean (for argument sake to $1.5 CA/US) then they CA investor gets back $562k CA$’s which is a 125% all cash return.
The US$ investor gets $375k back and has a 50% return.
THE POWER/LEVERAGE/CONSEQUENCES OF STRONG/WEAK CURRENCIES.
PS: of course the power works in reverse too, but playing at historical extremes and expecting some trending towards historical averages is a theory worth investigating if one was so inclined.
Clearfund isn’t kidding. There have been more than a few news reports up here about Canadians buying property in the US. The Canadian dollar went from 60 cents USD to parity in a few short years. Add in the real estate crash, and your homes are a huge bargain!
So not only are you losing your jobs to foreign interests, you’re losing your homes as well.
“Clearfund isn’t kidding. There have been more than a few news reports up here about Canadians buying property in the US. The Canadian dollar went from 60 cents USD to parity in a few short years. Add in the real estate crash, and your homes are a huge bargain!”
Not that I disagree but there were plenty of California’s buying that oh so cheap property in AZ and Vegas in 2006. It’s not necessarily that easy all the time. Although I do think that foreign investment in USA over the next couple of years probably works well as a currency play at least.
The currency play alone is probably enough to fuel a boom in itself, but the ego is raging too.
Foreigners picking up bank deal at 25 cents on the dollar must feel good enough to these guys that they are buying without even looking at the properties.
Hard to compete with ego-driven insanity.
In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting Federal Housing Administration (FHA) Commissioner Carol J. Galante will extend FHA’s temporary waiver of the anti-flipping regulations.
With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days.
In 2010, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011.
The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales.
It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA. All other terms of the existing Waiver will remain the same.
The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.
The Waiver continues to be limited to sales meeting the following conditions:
1. All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
2. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
I swear this feels more and more like the late 70’s and early 80’s. Where is the inflation?
The house next door started coming down on the 21st and our house closed escrow on the 22nd. New house funded today and should be recorded this afternoon. Talk about a stressful holiday. Got Valium?
The foreign buying is not restricted to houses or other property types “on sale.” All our real estate assets look cheap to most foreign buyers right now. A good example of investment of overseas money (along with some hedge fund money) is in farm land. Across the country, prices have risen dramatically over the last few years. Farm prices were little affected by the housing crash, but to foreign buyers armed with more valuable currencies, farm land is still cheap.
There is always dumb money. Most asian money (usually chinese money) is dumb money. You have corrupted comunist party members with lots of easy money looking for a safe place, just in case.
Looking at SD market, income proeprties are trading at 3 to 5% cap rates. Most 5% cap rates are pro forma, which means that they are really massaged as in real you have sub 4% cap rates.
Sub 4% cap rates are a horrible investment, better buy a 30 year treasury bond or corporate bonds rather than all the trouble of property managment.
Moreover, IRS will hold 30% of the gross rental income on any property owned by a foreign investor, so your return is not that great.
I can see a rationale in buying RE if you think prices will go up, but any analysis based on rental income will show that RE is still overpriced, at least in SD which I follow closely.
LCV–The “Basement Pricing” makes them thrifty. Buying property sight unseen makes them fools. Rule #1–NEVER buy a property sight unseen–NEVER!