Impact of foreign investment on real estate investing

Foreign investment impact on real estate
by Team Stessa, posted in Newsletter

Jacob Passy of MarketWatch reported last week that for the 6th consecutive year, Chinese investors have been the biggest purchasers of U.S. residential real estate. Amidst the backdrop of a trade dispute between the two countries, Passy reports that “The Chinese government could place stricter capital controls about taking money out of China and buying in America…China’s government has already put pressure on Chinese nationals to reduce their commercial real-estate investments.”

That said, Katherine Kallergis of The Real Deal reported that at the state level, governments are trying to make it easier for foreign investment money to enter the real estate market. For instance, “The Florida Legislature recently passed a bill that would make remote online notarizations legal, a move that could speed up foreign and out-of-state real estate investment in the Sunshine State.”

Despite these moves, Passy notes that the biggest pain point of the ongoing U.S.-China trade dispute would be a reduction of Chinese real estate investment in the West Coast. “Chinese residential real-estate investment is highly concentrated on the Pacific Coast with nearly 40% of Chinese buyers have purchased in California.”

Millennials affordability struggle as rents rise

Carly Stern of Ozy reported this week that rents in the U.S. rose by 64% between 1960 and 2014 adjusted for inflation. Meanwhile, real household incomes only increased by 18% during the same period adjusted for inflation. This has left much of the millennial working class, who began their careers around the 2008 housing crash, with fewer housing options.

Indeed, Katia Dmitrieva of Bloomberg furthers that first-time homebuyers have dropped since the financial crisis to 33% of total sales, versus 42% in the early 2000s. “That coincides with a shrinking supply of lower-priced properties.”

Source: Bloomberg

Record student debt has not helped the situation either, according to Dmitrieva.

Noah Buhayar and Prashant Gopal of Bloomberg add to this story by noting that a slowdown in house prices nationwide has put upward pressure on rents, making affordability a growing challenge particularly among younger renters. There has been “the first nationwide monthly price dip in more than seven years — albeit just 0.1%. At the same time, rent growth accelerated, climbing by 2.6% on an annual basis, after a lull in 2018.”

Decline of rural America and rural real estate

According to David Swenson of CityLab, since the recession most of the rural counties in the U.S. have struggled to recover lost jobs and retain their people, having a dramatic impact on real estate in these areas. “Nationally, 71 percent of all metropolitan counties grew between 2008 and 2017, but more than half of the remaining micropolitan and rural counties did not grow or shrank in population.”

Debbie Warren of Non-Profit Quarterly brings additional insight in commenting on Opportunity Zones, reporting this week that despite 40% being in rural areas, “investors have focused almost entirely on commercial real estate development in large urban areas.” That said, Warren reports that several states—including Kentucky, Alabama, and Texas—are “seeking to sweeten the deal for investments in rural Opportunity Zones through proposed legislation enabling state tax credits on top of the federal ones.”

Incomes in rural America are in decline as well, with Sophie Kasacove ofThe New Republic reporting on Pew data showing that one-fourth of rural counties in the U.S. have seen a “significant increase over the past decade in the number of “severely cost-burdened” households—those spending at least half their income on housing, including renters and owners.”

#PropTech update: Raises, sovereign wealth investment, and WeWork

Kathleen Howley of Housing Wire reported this week on the PropTech sector, and how the sector has benefited from a record year of investment. “Real estate startups have raised $1.9 billion from investors this year, an average of about $475 million a month…That’s up when compared with last year’s $4.99 billion, an average of about $417 million a month.”

It’s no surprise then that one of the world’s largest sovereign wealth funds—Singapore’s GIC—has begun to invest in funds that specialize in PropTech, according to Mike Phillips of Bisnow. “GIC had a specific pot of capital set aside for PropTech investment outside of its normal real estate investment activities,” according to Phillips.

Finally, The We Company—parent company of WeWork—made headlines this week on a number of fronts, starting with Ellen Huet of Bloombergstating that “The cash-burning startup is turning to financial gymnastics to keep expanding” through the purchase of the real estate it currently occupies. Specifically, WeWork is creating a $2.9 billion investment fund—called ARK—that aims to buy stakes in buildings where it is, and will be, a major tenant.

In further WeWork news, KatieBrigham of CNBC reported this week that the co-working startup lost $1.9 billion in 2018 on $1.8 billion revenue amidst rapid growth goals. That said, according to Brigham, WeWork is still considering going public in the near future.