Wednesday, June 1, 2016

Selling Homes Has been Tough for the Builder, But they have a New Buyers from Abroad

CNBC reported "This is a tough market condition. We have seen the market recover since the downturn, but the recovery has been slow, steady and in a pretty tight band," said Stuart Miller, CEO of Miami-based Lennar. He said land costs and entitlement costs are getting too high. Although, the demand for an entry level home is at the highest. This area is mortgage constrained, since first time buyers can’t get a mortgage easily. The builders like Lennar are now building multiple housing development apartments and renting them. They are also building rental communities. They build the home and rent out each home in the entire community. DR Horton makes a starter home brand called “Express Homes”, which are tailored for the first time home buyer. There is a new buyer in the US and it is the Chinese. They are the primary factor driving up investments in the US. According to a CNBC report from Rosen Consulting Group the Chinese direct investment in the US commercial real estate sector and residential sales could hit $218 Billion in the next four years. Chinese foreign direct investment into the U.S. totaled about $22.3 billion in 2015, an increase from roughly $18.1 billion in the prior year, according to the report. The increase is an average of 54 Billion a year. According the CNBC reporting Chinese owners acquired at least $8.5 billion in commercial property and at least $28.6 billion in residential property in 2015. Looking to 2025, the report projected that commercial acquisitions could hit $20 billion by then and residential buying could reach $50 billion. The reason for all this new investment increase is that larger firms in China including insurance firms have not invested in the US. This large Chinese investment is based upon the Chinese government currency value, and economic uncertainty in China. The Chinese government is imposing controls on how much money can leave China, but the Chinese are still getting their money out into US Real Estate Investment. The currency devaluation issue and the rules on long term real estate investment in a communist country has been the impetus for capital to flee. In China a person only has a lease-hold on property for say 70 to 100 years, so you can not pass on real estate to heirs. This is not an issue in the US. Expect greater Chinese investment in real estate, and home builders to build apartments instead of entry level homes.

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