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Latest AFIRE Survey: Foreign Investors As Bullish As Ever On U.S. Real Estate

Nearly Two-Thirds of AFIRE Respondents Expected to Invest More In U.S. Property In 2016 -- And Tax Reforms Passed By Congress Last Month Could Provide Even More Incentives to Invest
January 4, 2016
Sixty four percent of respondents to the annual survey of the Association of Foreign Investors in Real Estate (AFIRE) plan to invest more in U.S. real estate this year and another 31% expect to maintain their allocations at 2015 levels -- while none expect to decrease their investments.

New York outranked London as the top global city for foreign real estate investment for the second straight year, while Los Angeles jumped from 10th place last year to third place in the latest survey of the 200-member association representing institutional real estate and other organizations that have a combined estimate of more than $2 trillion in real estate assets under management.

Seattle moved into the top five U.S. destinations for foreign capital for the first time, tying with Boston for fifth place. Houston -- where the plunge in oil prices is contributing to a slowdown in real estate and the general economy -- fell from number 3 in 2015 to 11th, while San Francisco, where rental rates and property prices have continued to appreciate rapidly, fell from 2nd to 3rd in the latest survey.

After falling from 10th place to 15th in the world last year, Washington, D.C. moved back up to 8th globally this year, and edged up from fifth place to number 4 among U.S. markets.

While the survey was conducted later in the fourth quarter, it was before Congress adopted broader tax exemptions for foreign investors under the Foreign Investment in Real Property Tax Act, or FIRPTA as part of the massive federal appropriations bill on Dec. 18. The tax and spending bill exempts qualified foreign pension funds and their entities from taxation under FIRPTA, a 1980 bill that imposes income tax on foreigners disposing of U.S. real estate interests.

"The FIRPTA changes were not anticipated," said James A. Fetgatter, chief executive officer of AFIRE. in a phone interview. "The pension fund exemption has been floated around in Congress for a while, but it was kept in the House bill just a day or two before the vote. I think a lot of investors were not aware that it would happen this year," Fetgatter said.

Fetgatter added that the FIRPTA changes will bring welcome relief from certain taxes and should provide additional incentives for foreign investment into the U.S.

Even without knowledge of the FIRPTA changes, investor sentiment in the latest survey showed the strongest level of confidence in years about the U.S. as a safe harbor for investment, he said.

"We have a clearly recovering real estate market and the dollar is increasing. There are not a lot of roadblocks to worry about, like for example the immigration crisis in Europe, stock market fluctuations and a possible recession in China, and bubbles in the Brazil real estate market," Fetgatter said.
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