Who is Buying Now - A Look at Foreign Investors in the Residential Market

Mexico ranked third, after Canada and China,  in international purchases of U.S. residential real estate in the year through March 2013, according to the National Association of Realtors. The report,  2013 Profile of International Home Buying Activity, an analysis of data gathered from realtors,  reports that nearly 50% of purchases by Mexicans in the U.S. were in suburban areas and about 30% in resort areas. The vast majority,  91%, were residential purchases of detached single-family homes. The average price was $156,250 and 48% of the purchases were made with cash. California and Texas  accounted for 62% of all Mexican purchases;  San Diego, El Paso, Laredo, San Antonio, and Las Vegas, were Mexican buyers’ preferred cities.

The United States’ proximity and security are the most attractive features for Mexicans when it comes to buying residential real estate. Asked if there were other factors,  Sergio Aguayo, a political scientist with the Colegio de Mexico, explained that Mexico has a large number of millionaires. According to WealthInsight, at the end of 2012, there were approximately 145,000 individuals with $1 million or more in assets, whose total combined wealth was $736 billion which equals to 43% of total individual wealth held in Mexico. Other reasons, Aguayo said, “are the American cultural attraction and the Mexicanization of large parts of the U.S.”

In the 12 month period ending March 2013, five countries accounted for the bulk of the international purchases: Canada (23%), China (12%) and Mexico (8%), followed by India and the United Kingdom, with 5% each.  In 2007, Mexico was leading international purchases, accounting for 13% of all, but the increase in real estate prices and the weakening of the Mexican peso against the dollar, plus the strength of the Chinese Yuan, contributed to Mexico dropping to third place.

International buyers fall into two different categories. The first are foreign citizens with permanent residence outside the U.S. These people typically purchase property for investments, vacations, or visits to the U.S. The second category are recent or temporary visa holders. For the 12 months covered in the NAR’s report, the total sales volume to international clients is estimated  at $68.2 billion, 6.3% of the total homes sales market of $1.08 trillion for the same period. The main factors influencing the decision to purchase in the U.S. are profitability and security.

The types of homes purchased by international buyers are different from  homes purchased by domestic buyers. The international non-resident is likely to be substantially wealthier than the average domestic buyer and may be looking for a trophy property. They are more affluent than most buyers, looking for properties in specialized niches, such as a large estate suitable for multi-generational living, or a property that establishes the individual’s presence and standing in the community.

Source: Forbes Magazine