Foreigners have made 16% of U.S. property purchases in 2015. A welcomed break for investors abroad interested in the safety net of the U.S. real estate market is a new law signed by President Barack Obama that would ease restrictions brought on by a 35-year-old tax on foreign investments known as FIRPTA. With the 1980 law, many foreign buyers had to structure purchases to make themselves minority investors and bypass the tax. The provision in the new law now waves the taxes imposed and enables foreign pensions to buy as much as 10 percent of a U.S. publicly traded real estate investment trust, breaking down the outdated tax barrier which was capped at 5 percent previously.
Investments from foreign buyers have resulted in the U.S. cementing its position as a top performing real estate market on the global scale. Investors from Latin America, Canada, Asia, and Europe have boosted real estate purchases with strong economic gains developing in cities such as New York, Miami and California, where residential sales and investments from international buyers and ultra high net worth investors (UHNWI) have created boom markets in the last few years. Overall investments in residential and commercial real estate totaled around $78.4 billion in 2015 - 16 percent of the total $483 billion invested around the country, surging from $4.7 billion in foreign investment in 2009, according to Real Capital Analytics. This data predicts that U.S. real Estate could draw more foreigners who are expected to dump more money into the market in 2016. In fact, according to the Association of Foreign Investors in Real Estate (AFIRE) survey, the U.S. has ranked first for countries with the best opportunity for price appreciation in 2016.
For 2016, a weak European market, China’s economic slowdown and Brazil’s recession plus the struggling Latin American markets could boost prices and drive more capital into top U.S. real estate markets as foreign buyers and UHNWI look for safer investments and better returns. The recent legislation giving investors a break from certain FIRPTA taxes should provide additional incentives to encourage and significantly increase foreign investment in equity REITs.