Down-Under Investors Snapping Up Under-water US Housing

on Jul 26, 2012
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The NZ Herald reported 26 July that Kiwi property investors are buying distressed residential real estate in the United States, lured by rental returns well in excess of what the market’s paying back home. And jumping on a now well-populated bandwagon – according to the National Association of Realtors’ 2012 Profile of International Home Buying Activity, released in June, total residential international sales in the US in the year ended March 2012 reached $82.5 billion, up from $66.4 billion in 2011. The NAR estimates that roughly half of these sales are to non-resident buyers, with the balance being to recent migrants.

According to the NZ Herald, one investor – Aucklander Tim Duffett – has purchased seven properties in Las Vegas, which was particularly hard hit when the bubble burst, and is achieving returns of 17 percent in one case and up to 28 percent in another. Said Duffett, “I can pay a house off there in four years.” Another New Zealand-based investor, Nancy Caiger, who is president of her regional Property Investors Association, acquired properties in the southern metros of Atlanta and Memphis and also in Rochester, on the western extremity of New York state. Caiger describes the opportunities in US housing as “once in a lifetime”.

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!m[](/uploads/story/193/thumbs/pic1_inline.png)For sure, making a decent return out of residential real estate is hard work in New Zealand, where property prices have remained stubbornly high throughout the global fiscal/economic crisis and where price-to-rent ratios for desirable single-family homes in major metro Auckland are around the 24-25 mark, translating into yields of just over four percent.

But buying rental properties 15 to 20 hours flying time from home, and in another country to boot, is not for everyone. David Whitburn, president of the Auckland Property Investors Association – the country’s largest by a long stretch, told the NZ Herald that he’d checked out the US market and flagged it away. “Sure, some of the returns appear good on paper. But when delving into this further, this got well outside my risk tolerance profile,” Whitburn said. He cited the risks in long-distance management of tenancies, the high default levels in rent payments in areas particularly affected by the house price slump, and the exposure to personal injury legal claims in a highly litigious country. Oh, and exchange rate risk. They’re all good reasons for sober reflection before jumping into distressed American homes.

And there are signs that this particular gravy train might anyway be pulling on out. Despite the uptick in sales values mentioned above, real estate mega-portal trulia.com has just released its latest International House Hunter Report, tracking offshore inquiries for properties listed on the site, which shows that for the second quarter of 2012, international queries were off nearly 10 percent on the same period last year. Pertinently, the biggest decline in foreign interest is in those areas – such as Miami and Phoenix – where prices are appreciating best in what is still a fickle market. “Foreigners attracted to real estate bargains get turned off when prices increase,” said Jed Kolko, Trulia’s chief economist, in a statement releasing the report.

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