The US has been one of the major powerhouses in the world. For several years, many countries depend on the dollar for their economy. For this reason, property investments in the US are considered to be a great source of income.
Economic Status of the US
Trade war with China is also taking a toll on the US economy, as it hinders short-term growth, with manufacturing and exports sector suffering the most. However, slow down can be effectively countered by higher fiscal spending and lower borrowing costs. Gross Domestic Product is expected to increase by 2.3% in 2019 and 1.6% in 2020.
Despite the challenges, the US economy remains the largest and most important in the world, representing 20% of the total global output. The IMF also lists the US as the sixth-highest per capita GDP.
While the country has a strong services sector, the manufacturing industry is also fueling growth, contributing as much as 15% of output. Based on the 2019 Economic Freedom Index, the US has a score of 76.8, ranking it the 12th freest in the world. Its score increased by 1.1 points, with notable improvements in the rating of the tax burden and government integrity. These increases covered declines in monetary and labour freedom and fiscal health. Out of 180 countries, the US ranked 22nd of the least corrupt nation, according to the 2018 Corruption Perceptions Index by Transparency International.
Liveability in the US
In the latest Global Liveability Index conducted by The Economist Intelligence Unit (EIU), no US city ranked in the top 20. Honolulu, Hawaii ranked highest taking the 22nd spot, improving one place from last year. The capital of Hawaii posted perfect scores in infrastructure and education, a score of 95.0 in stability, 91.7 in healthcare, and 88.0 in culture and environment to attain a total score of 94.1.
To experience all these, one must be willing to pay the price as Hawaii has the highest cost of living in all of the states in the US, according to the Missouri Economic Research and Information Center. CNBC also ranks Honolulu as the most expensive area to live in.
Experts believe that the reason why US states rank poorly in liveability rankings is because of higher crime rates. The crimes in the country are a mix of petty crimes and severe violence such as mass shootings that seem to define the country. The US also posted weaknesses in public healthcare and shortfalls in infrastructure.
Property Investments in the US
Foreign investors who want to make property investments in the US must deal with certain restrictions, which may be insignificant if considering making a buy-to-let investment. Some of the minor restrictions on foreign ownership of real estate are included in the International Investment Survey Act of 1976, Agricultural Foreign Investment Disclosure Act of 1978, and Foreign Investment in Real Property Tax Act of 1980. For instance, foreigners cannot buy land in Oklahoma, but they can purchase condominium units. In general, property investments in the US vary from state to state.
From 2015, foreign investors invested close to $170 billion in US real estate, taking at least 15% of the total US market. In the data from the Association of Foreign Investors in Real Estate (AFIRE), foreign investment buying will likely continue for years to come because of the yields.
Most foreign investors view the US real estate as a safe haven that offers attractive property valuations. In 2016, the country posted capitalisation rates of 6.4% compared with only 5.5% of the largest global markets. One of the most significant contributing factors here is the recent revisions in the US tax laws, particularly limiting the withholding taxes on investment gains.
Most of the foreign property investments in the US come from China, Singapore, Germany, South Korea, and Qatar, somewhat exceeding investments from Canada and the Middle East.
Property Market Trends in the US
The property market of the US is now cooling after enjoying six years of steady house price growth. There is a gradual decline in the house prices as demand and construction activity continues to slow down amid rising interest rates. According to the Federal Housing Finance Agency’s data, the US house price index only appreciated by 5.76% (3.5% adjusted to inflation) year-on-year in November 2018, which is significantly lower than the 6.72% and 6.37% in November 2017 and 2016.
However, 20 of the major cities in the US continue to enjoy house price increases, according to Standard and Poor. Las Vegas posted the highest price hike with 12.07%.
Based on the data from the US Census Bureau, the average sales price of new homes increased by 1.8% year-on-year in November 2018 to reach $362,400. Median sales price dropped by 11.9% to only $302,400 during the same period. Existing homes have a modest increase in median prices of only 2.9% or $253,600 in December 2018, as reported by the National Association of Realtors.
These figures can be attributed to a fall in demand.
CHG Recommendation: Invest in Buy-to-Let Properties in the US
It is much easier for foreigners to buy rental properties in the US. Most home sellers will not consider selling to overseas buyers if it will be used as a personal residence. It will also be wiser to make property investments in the US through rental properties as most millennials in the US do not consider buying a home. They would instead rent out a property. It would be best to get a studio apartment in the Manhattan area as they have high returns. A studio apartment can give you a rental yield of 7%, while a one-bedroom apartment can give you a 4.4% rental yield. Getting a two-bedroom unit will only earn you a meagre 2.4% rental yield. You just have to take note that the US housing law is pro-tenant because of the country’s strong anti-discrimination laws. As such, some states have subtle rent controls, but these provisions also give landlords a good return of investment.