How is Foreign Money Impacting U.S. Real Estate?

When you hear about foreign investors in the United States, you think the positive side of it. It can mean that they see something in our country worth investing millions of dollars into. On the real estate side of this issue, there are some troublesome issues.

Some economic experts believe that foreign investors are posing a threat to residential real estate, and that the time is now for the U.S. government to act on this influx of foreign investment money.

So which foreign investors are injecting loads of cash into our real estate market?

While the United Kingdom is the largest overall investor in the U.S., they are not dominating the housing market. In Florida, Brazilian millionaires have been investing in commercial and residential real estate for the past several years now. Flávio Augusto da Silva, the owner of Major League Soccer’s Orlando City Soccer Club, has not only put his own money into a sports team, but he is also putting his money into Orlando the city. Augusto da Silva is using his business connections in Brazil to help cater to the large Brazilian tourist clientele in Orlando. Orlando, already a tourism haven, receives roughly 250,000 Brazilian visitors year-in, year-out.

Foreign money going into real estate isn’t all sunshine and lollipops and everyone getting rich.

The negative impact of foreign investments in American real estate, specifically residential, might be overlooked by some U.S. government officials and your average citizen. In some major U.S. cities, there’s an unusually high demand for residential real estate, with international buyers outbidding each other, often by tens and hundreds of thousands of dollars. The same type of scenario took place just prior to the 2007 real estate crash. Back when wealthy buyers, most of them foreigners, were outbidding one another by buying homes with…in the words of former NFL wide receiver Randy Moss…”straight cash homey!”

Most Americans aren’t behaving in this same, reckless financial manner. While the average American home buyer isn’t acting this way, Chinese investors have been doing so for years. You can blame high-priced real estate on the influx of foreign cash, particularly from mainland Chinese money, which has flooding major American cities with billions of dollars.

A Bloomberg report from 2014, detailed how wealthy Chinese businessmen have been able to easily transfer billions overseas. Wealthy mainland Chinese investors bring their funds to Hong Kong and from there to other parts of the world. Most of the money ends up invested in some of their favorite foreign destinations. Besides in the U.S., Australia and Canada have also seen all types of real estate being bought up by the Chinese. Although both countries have begun trying to put a stop to this invasion of foreign cash.

Recently, more than 25,000 concerned residents in Vancouver signed a petition pleading with their government to curb the foreign buying of Canadian real estate. Over in Australia, government leaders have taken some action. They pledged to enact stiff application fees and even outright prohibition of any Chinese investors buying existing Australian residential real estate.

The same can’t be said of America. The U.S. government will have to investigate this growing issue, sooner rather than later. If they don’t look to curb the influx of foreign money earmarked for American residential real estate, then the already overpriced housing in major markets (New York, San Francisco, Los Angeles Dallas, Denver, Seattle, etc.) will continue to be out of reach for most Americans.