Despite all the doom and gloom attached to the US market there appears to be renewed interest from the Far East in areas such as Los Angeles and San Francisco where property prices have fallen dramatically and are the worst hit areas in the country. SouFun, which is the largest real estate website in China, has announced a reconnaissance mission to California and possibly Nevada in the next few weeks where potential property investors will assess the market and see what is on offer.
SouFun has received massive interest for the trip with well over 300 people expressing an interest in visiting the US to see how the property sector is performing. Historically it was the Japanese who had to an extent been great supporters of the US property market but now it looks as though the Chinese property investment sector is taking a greater interest in the US as a whole. This could well be the catalyst for a recovery in the US property market in due course although many forecasters are suggesting prices could fall further in the short term. While we may not see Chinese investors dipping their toes in the market just yet, the time may not be too far away.
Why would Far East investors be interested in the US?
There has always been a very close relationship between investors in the Far East and the US property sector. The vast majority of prominent buildings in the US are ultimately owned by overseas companies who have invested substantially in the country over the last few decades. America has always been seen as a world leader and with the property sector carefully aligned to the stock market and US economy this has often been a very useful entry point for many investors.
Over the last few weeks we have also seen the demise of the dollar as the US rescue package has expanded and more and more taxpayer’s money is used to bail out the financial sector and assist those falling behind on their mortgages. This has therefore seen the vast majority of Far Eastern currencies appreciate against the dollar which means investors get more for their investment. This and the fact that they’re own local property markets are still under severe pressure and unlikely to bounce sharply in the short term has seen more and more people look overseas.
Indeed this has been a phenomenon in the UK where the currency has collapsed against the likes of the dollar and the euro and given many overseas property investors a greater reason to look at the UK property sector.
Can overseas investors saved the US economy?
Overseas investors on their own are unlikely to save the US economy but they can offer a useful backbone for domestic investors as and when markets look like bottoming out. It must also be appreciated that not all areas of the US are attracting the attention of overseas investors at the moment with California and Nevada the only two mentioned in relation to the SouFun reconnaissance trip which has attracted so much interest.
The divergence in property price falls across the US is enormous and while a general recovery in the hardest hit sectors is not forecast for the short term, there does appear to be interest from those with longer term investment views. Some areas of the US still have massive property surpluses which will take literally years to sell down during which time there will be limited upside in the local property market.
Is now the correct entry point from the US property market?
In many ways this will depend upon where you are located and your local currency which may well offer further benefits on top of US property price falls. For example those in the UK have seen the exchange rate between sterling and the dollar fall by around one third which effectively means that those UK property investors acquiring US assets are paying in excess of 30% more (when taking into account the exchange rate) which could well take out the recent fall in many properties across the US. In this instance it would not be beneficial to look at the US property market until the UK currency has recovered somewhat.
However, for those countries which have performed better on money markets against the dollar there is the potential not only to benefit from the fall in US domestic property prices but also the added purchasing power of their local currency. When converting this into US dollars there is also the potential, should as expected the US dollar recover in due course, of making a return on the currency conversion as well as the hoped-for increase in US property prices in the future.
In reality any property investor would be very fortunate or very skilled to pick the bottom of any market never mind the current market, the like of which has not been seen for approaching 100 years. Despite a number of rescue packages in the US and around the world we have seen no real improvement in property markets and buyers although starting to show interest have not been willing to show their cash just yet. Whether now is the time to drip feed money into the market is debatable but as we mentioned above, currency issues are also starting to make a difference and many investors are switched on to this opportunity.
Conclusion
There has always been a close relationship between the US property market and the Far East with many investors ploughing billions of dollars into the country over the last few decades. Even though we have seen the likes of China and India emerge from the darkness of late the US economy is still the engine room of the worldwide economy and no recovery will take place until the US is ready.
Such has been the variation in currency exchange rates that this element is now playing a major part in property investment decisions were currencies such as sterling have fallen by 30% against the dollar with some observers forecasting further falls in the short term. When considering variables such as this as well as actual property price collapses in local currency there are significant opportunities for those who do their homework and bide their time.