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Foreign Buyers In American Real Estate

Mega-wealthy foreign buyers getting deep into American real estate – shutting out American buyers, scooping up the top of the market and, laundering money.

A development rendering of the One57 building in Manhattan. A penthouse in the building is said to be in contract for $90 million. (AP / Extell Development Company)

A development rendering of the One57 building in Manhattan. A penthouse in the building is said to be in contract for $90 million. (AP / Extell Development Company)

The American real estate market is not the same since the Great Recession.  Private equity firms buying up tons of houses.  Mortgage rates low, but mortgages still hard to snag.  And then there are the foreign home buyers.  More than ever.  From all over the world.  Looking at the US and seeing a great place to own.  To, in effect, stash money.  And sometimes to launder it.  When you hear “all-cash purchase,” that cash may well be from abroad.  They’re buying $90 million condos in New York, and maybe something on your block.  This hour On Point:  foreign buyers, American real estate.

– Tom Ashbrook

Guests

Andrew Rice, contributing editor at New York Magazine. Author of “The Teeth May Smile But the Heart Does Not Forget.” (@riceid)

Jed Kolko, chief economist at the real estate website Trulia. (@JedKolko)

Shima Baradaran, law professor at the University of Utah.

From Tom’s Reading List

New York: Stash Pad – “According to data compiled by the firm PropertyShark, since 2008, roughly 30 percent of condo sales in large-scale Manhattan developments have been to purchasers who either listed an overseas address or bought through an entity like a limited-liability corporation, a tactic rarely employed by local homebuyers but favored by foreign investors.”

The Nation: How New York Real Estate Became a Dumping Ground for the World’s Dirty Money — “Financial crime experts have a name for the process of creating mazes of bank accounts and offshore companies to move and hide money: layering. When the layers are laid down skillfully, it’s often impossible for authorities to detect flows of illicit cash. The United Nations Office on Drugs and Crime estimates that as little as one-fifth of 1 percent of money that’s laundered around the world is identified and intercepted.”

Forbes: Chinese To Spend Billions On American Real Estate — “The United States is the country of choice for China buyers.  Canada and Australia come in next at No. 2 and No. 3 respectively. That rich Chinese individuals and savvy corporations are buying up real estate in world class cities is no surprise at this point.”

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  • JGC

    This should be an interesting companion piece to yesterday’s “…Vacation in the Sharing Economy”, where some of the comments were from folks who only just barely hung on to their homes during the Great Recession, by gratefully participating in the home-sharing rentals of Air B&B, VRBO, etc.

    And now lower and middle class earners are even more effectively blocked from affordable home ownership through the competition from foreign purchasers and U.S. home-grown private-equity investment corporations (like Blackstone Group).

    • The poster formerly known as t

      The class structure of the U.S. is changing so it can compete with third world countries for resources. That means impoverishing a large segment of what, in the days of cheap oil and cheap steel used to be the middle class.

      When I say compete for resources, the per capital consumption of resources may drop, but the total aggregate amount of consumption may be high as the consumption will shift towards those in the capital class and away from the former middle class and away from Joe Sixpack.

      The U.S. middle class, like the U.S. large interstate highway, is seen as a liability in the age of increasing oil prices, scarce investment capital, and declining resources from the perspective of the elite. This is not a secret. The elite have been delivering a very sugar-coated version of this message for a while.

      • Human2013

        Nice summary. This was always going to be the destiny of the US. For starters, many states and municipalities in the US were founded as joint stock company ventures granted by the English crown. Moving on, we find that we LOVE free labor and have never done anything to reconcile the loss of dignity of labor. At this point, the market is so severely manipulated that it can never be made “fair” again.

        • The poster formerly known as t

          The Greeks, the Romans, and other ancient civilizations may have been more honest about the nature of labor I don’t think they believed that there was any dignity in work-for-hire labor. Most work-for-hire labor was a form of slavery , to them. They didn’t believe in careers or market incentives.

      • Don_B1

        Human2013

        ============

        I give you an Up Vote as most of your comments are right on, but I have to disagree on two points:

        1) There is no lack of resources to ensure a growing middle class. But there is a misallocation of our resources from support of the middle class to using them to gratify the super wealthy. The super wealthy use their wealth to convey power and control others, not to consume the output of others which would enrich everyone. That is why the rich, even together, do not spend at the same volume as the much more numerous middle- and lower-income citizens do.

        2) Real estate is often used to support rent-seeking actions; see: http://jaredbernsteinblog.com/rents-rents-everywhere-rents/

        and the work of Joseph E. Stiglitz:

        http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

        http://www.vanityfair.com/online/daily/2012/06/joseph-stiglitz-innovation-fallacy-reagan

        where the second Stiglitz link above itself has an important link to another piece by Mr. Stiglitz.

        What the rich are doing is mainly to use capital for their uses (predilections), even when other uses would be much more beneficial for everyone, including the wealthy.

        • The poster formerly known as t

          1) . The super wealthy are better off not existing. One of the reasons why their existence is bad is because they earn money much faster than they can spend it–or so I’m told. There are two reasons why I think this is true. The first reason is that they are most likely super-wealthy because their income comes from interest a large sum of money. They would have to ratchet up their spending exponentially to decrease their wealth. There are limits on what someone can spend. There are so many luxury items and only so many goods and services they can consume. An economy that depends of the spending of the super wealthy that has an understated labor surplus, like most economies within civilization do, will have the majority of its works be enriched by more spending by the super-wealthy. That further spending is never going to materialize. The super-wealthy already have everything that they want, material and service wise.

          Furthermore, there is more to the economic problems industrial civilization faces than wealth concentration–there’s the surplus labor situation which is related to the ecological situation of human overpopulation. Redistributing resources in 2014 so that more Americans can have resource-intensive middle class lifestyle while the rest of the world seeks to do the same while global population keeps growing is not really possible. It’s not just the “greed” of the super-wealthy that is a problem but the growing numbers of the 99% –and the economy doesn’t need more people in most parts of the world. Not only are there aren’t enough resources, namely, fossil fuels, arable land and freshwater to expand the current number of people who currently have comfortable middle class lifestyles but that number has to shrink as the 99% along with the super-wealthy continue to deplete resources through a combination of consumption patterns and sheer numbers.

        • The poster formerly known as t

          I appreciate your upvote but I think the two points that you disagree with on me on, are faulty.

          1) Redistribution wouldn’t help with the problems of wealth concentration that the existence of the super wealthy poses. The system would be bet if the super wealthy didn’t exist. The super wealthy, I’m told, earn income much faster than they can spend it and I’m guessing that they are doing it through interest on investments. When I was told that, at first, I questioned the very notion that someone could have trouble spending more money. The reason for this, is simple. There are only so many goods and services someone can consume. There are only so many homes and yachts a person can own and reside in. Only so many articles of clothing they can own and only so many meals, and back-rubs they can order.The super wealthy cannot directly employ everyone who needs a job and they cannot create more middle class jobs.

          Getting back to the topic of resources and a growing middle class, nothing can grow forever in a closed system. The planet that we live on,Earth, is a closed system which means at some point the growth of the middle class will be limited by availability of resources on Earth, like say cheap energy, in the form of non-renewable reserves of fossil fuels. Other limits could be the availability of minerals, soil, arable land, freshwater, favorable weather,and the quanitity of “good jobs” is a prerequisite for a middle class lifestyle. On realistic way to promote a growing middle class would be for what Illumanti conspiracy theorists like to call “depopulation”. If the amount of surplus labor was reduced, there would be less prisons, smaller militaries, less credentialism in the marketplace, smaller governments and other institutions that exist to manage large populations of humans, many of whom have no economic purpose with the high efficency that modern technology has created. I know everyone likes to point at the super-wealthy but I think a large problem for the non-wealthy is that there are too many of them and they often compete with each other for what is a scarcity of resources…otherwise, 99% of people on this planet would have the consumption patterns of the middle class by now. The most populous regions of the world have embraced capitalism, STEM education, thrift and hard work and the middle class is still a minority in the most populous regions of the world.

          2) Any investment is a form of rent seeking and is a form of rent-seeking. Real estate is the one of the first, if not the first, and most profitable form of rent-seeking. Half the reason why there was a housing bubble , was because the average working adult aspired to use real estate, like the the wealthy, as to rent-seek. George W. Bush understood that aspiration when he used the term “Ownership Society’.

    • Don_B1

      But, ATTENTION SHADENFREUDE FIENDS!

      At least some of the rental property speculators are getting payback:

      http://www.salon.com/2014/07/09/one_percents_rental_nightmare_how_wall_street_scheme_blew_up_in_its_face/?source=newsletter

      It would appear that it couldn’t happen to more deserving people.

      • JGC

        I remember Warren Buffett being very skeptical about how these investment groups were going to maintain all these sprawling single-family properties; very different from a REIT consisting of large holdings of apartment buildings.

        Who bought these stinkeroo bonds, and equally as important, who is shorting them?

  • http://flustercucked.blogspot.com/ Frank TheUnderemployedProfessi

    This is one aspect of our trade deficit coming home to roost. Instead of purchasing goods and services produced by American labor (real trade), the money that we have given to foreign economies will be used to purchase our real estate and capital assets. In other words, we have exchanged real wealth for ephemeral consumable goods and services, impoverishing ourselves. This is a result of Global Labor Arbitrage.

    • Acnestes

      Nicely put.

  • AC

    i’ve mentioned this a million times – so glad there’s finally a show on it!!

    • F.Y.I.

      To me that’s saying the On Point staff doesn’t put much credence into your opinions. Just keeping it real.

      • AC

        ok, i exagerrate – maybe only mentioned it once or twice :)

        • F.Y.I.

          Understood :)

  • StilllHere

    Shutting out American buyers … let the fear-mongering begin.

    Mega and not-so-mega American real estate buyers have been buying properties, and shutting out the locals, across the globe for decades. It’s good for everybody.

    This show promises to be context free and full of xenophobia and selective outrage.

    • Human2013

      Your critical thinking skills have been severely compromised by your faux leaders.

      This conversation is about the unfair and deliberate move to amass private property by the “rent seekers” at the expense of the 99%.

      • StilllHere

        Exactly, fear mongering regarding the mythical 99%.

    • AC

      typically, communities where only renters exist are not the healthiest ones in a city. that is where my interest lies with this topic; what are the obligations of foreign buyers if they are only ‘investing’ in the property but not living here….

  • Human2013

    This was always going to be the case for private property ownership. There are a two very important episodes in American history that give us a false sense of the equality of private property — the Homestead Acts and the New Deal. Absent these two major government initiatives, most Americans would not be private property owners.

    As it stands now, there is absolutely no plan of action to stop the concentration of wealth and thus, the concentration of private property.

    Karl Marx was a true visionary and hit the nail on the head regarding the ownership of private property.

    “You are horrified at our intending to do away with private property. But in your existing society, private property is already done away with for nine-tenths of the population; its existence for the few is solely due to its non-existence in the hands of those nine-tenths. You reproach us, therefore, with intending to do away with a form of property, the necessary condition for whose existence is the non-existence of any property for the immense majority of society.”

    • Human2013

      To my friends on the right, once again, you are being bamboozled. It is only by the grace of government (democratic) – the collection of all people – that you have amassed any type of fortune.

      • StilllHere

        I’m reminded of that every time “my property” is expropriated by local authorities.

        • Human2013

          Please send me proof of your property being “expropriated” by local authorities, silly rabbit.

    • Arkuy The Great

      I saw this on a bumper sticker once:

      PRIVATE PROPERTY IS THEFT…until you actually own some

      • Don_B1

        But let your “private property” suffer some decline which the “private property” owners adjacent to yours find offensive and your “private property” rights will be severely infringed by those neighbors.

        And they will use government to enforce their requirements on how you tend your property.

  • Human2013

    Let me add that the existence of private property in the US until VERY recently was limited to white men — neither women or people of color had this privilege.

    George Washington likely married Martha for her money – money she was not allowed to handle. Gold digger?? As far as I know, George had an intimate relationship with Martha’s “mulatto” half sister.

    • Arkuy The Great

      Just imagine how he would have conducted himself if he were crowned “King of America” as some of his compatriots insisted.

  • Human2013

    “In colonial times, law generally followed that of the mother country, England (or in some parts of what later became the United States, France or Spain). In the early years of the United States, following British law, women’s property was under control of their husbands, with states gradually giving women limited property rights. By 1900 every state had given married women substantial control over their property.”

    So, women have only had access to private property for just over a hundred years….. hmmmmmm

    • Arkuy The Great

      We fail to realize and appreciate just how much our current cultural and legal rubric is the exception in human history.

  • Arkuy The Great

    We have always been worried about “those people” buying too much of a stake in our country.

    40 years ago we worried about the Arabs and their petro-dollars buying up choice parcels in Manhattan.

    20 years ago we worried about Japanese investors buying up choice American companies, brands and real estate parcels along the West coast.

    Now we worry about the Chinese, Indians South Americans and pretty much everyone else doing the same.

    I have to wonder if this whole discussion does not revolve around a certain acceptable xenophobia. It is not nice to hate on poor brown people but it is sure as h3!! fine to hate on them when they are rich!

    • StilllHere

      Exactly, moreover, US entities own a lot of real estate outside the US. Xenophobia: what comes around, goes around.

  • Jim

    This is the consequence of low return from almost every investment vehicle including junk sovereign debt such as Spanish bonds. The phenomenon originates from the asset purchase programs from central banks. It is called the crowding out effect.

    • StilllHere

      Junk sovereign debt has performed fantastically from the bottom. It’s like buying Detroit today. How much Spanish debt has the ECB bought?

      • Jim

        Remember, it is not just the ecb. These garbage investments are seek by any investors seeking high return. There are little to no alternatives. If they believe these are safe investments,.. they are sadly mistaken.

  • M S

    So, are the buyers living in these the properties permanently or do they remain empty for 95% of the time. I would think that having a visa for visiting the U.S. would make the use and enjoyment of the property fairly difficult. Or is the U.S. Federal Government selling out the American people again for tax revenue?

    • Mari McAvenia

      On the high end of luxury properties, located anywhere in the USA, most owners spend less than 3 weeks a year living in the “home”.

  • Yar

    In times of turmoil put your resources into something real. We are experiencing a cash bubble, the dam will break. I would like to see currency tied to energy, instead of a gold standard we need a kilowatt standard. Wages should be indexed to energy costs as well. When the dollar crashes we will be in revolution. I wonder if the crooks on Wall Street are counting on revolution as a way to avoid jail when boomers find the value of their accounts has evaporated.

    • The poster formerly known as t

      I’m not sure if you’re proposing anything different from what we have. Energy inflation is already here and money printing has had no real effect on it.
      No matter what monetary policies are perused, the amount of energy ANY given currency will purchase in the global market has nowhere to go but go down as our main sources of energy, fossil fuels, become more scarce over time. Demand destruction, may temporarily reverse this trend, but we are determined to burn all the recoverable reserves for fossil fuels.

  • Sue Leroux

    If I paid what Europeans paid for health care and child care, I could afford a home in another country too.

    • StilllHere

      They pay in taxes.

  • nonlineartime

    My husband and I were looking to buy a house in Austin, TX, and we encountered a very nice bungalow in a very hot neighborhood that had been completely renovated. While walking through with the real estate agent, he mentioned it was owned by an African investor who also owned another house down the street that was almost finished being renovated and had sold another the previous month. Based on what I know about the real estate stock in that neighborhood (Windsor Park), I know the investor was probably making about 50% profit on the original purchase price. Most run-down houses there go for 160-190k, while the renovated house was asking about 250k and probably had about 40-50k in renovations. It made us very uncomfortable since we suspected it was a money laundering operation

    • StilllHere

      Not sure I get your math. He pays $190K, puts in $50K, plus carrying costs and may sell for $250K. Looks like he may have found a way to turn blood diamonds back into coal.

  • Mari McAvenia

    Anybody been to Quincy, lately? Noticed how most of the big, multi-family houses and storefronts along commercial streets have been bought up by people newly arrived from China? I wonder how many nail salons, massage parlors and Asian restaurants one small city really needs. It’s not creating jobs or expanding the economy for the natives, that’s for sure.

    • M S

      Well, it’s churn and tax revenue for the government, that’s all that the needed (for government entities to allow it).

      • Mari McAvenia

        Please clarify.

        • M S

          Our government doesn’t care if foreigners buying real estate crowds out American buyers as long as the tax revenue comes into the coffers.

          • Mari McAvenia

            Agree.

  • David Fechter

    What are the property taxes being paid by the foreign property owners???
    This this be raising hundreds of millions of dollars for the City of New York.
    Do they pay higher rates if it is rental property, vacant or owner occupied???

  • AC

    can you please discuss the laws governing these types of sales?

    • RealEstateCafe

      AC: Thank you for asking that question. Let’s begin where the New Yorker ended in their article “Real Estate Goes Global”:

      http://bit.ly/BidGlobally

      “The challenge for Vancouver and cities like it is that foreign investment isn’t an unalloyed good. It’s great for existing homeowners, who see the value of their homes rise, and for the city’s tax revenues. But it also makes owning a home IMPOSSIBLE (emphasis added) for much of the city’s population. And the tendency of foreign buyers not to inhabit investment properties raises the spectre of what Yan has called “zombie neighborhoods.”

      One option would be to severely restrict foreign ownership, but that’s politically difficult, and not great for a city’s economy….”

      Now to your question, what’s the case for a regulatory response, and what might that include?

      1. Restricting foreign ownership — particularly dirty money — would require verifying identity, so that’s a possible first step to regulating BLIND bidding wars:

      http://bit.ly/VerifyThis

      2. In some cities like Cambridge & Toronto, bidding wars have reached EMERGENCY levels; and because of the BLIND bidding process, first-time homebuyers may unknowingly be bidding against a phantom buyer or worse themselves. So in an age of internet transparency, isn’t another step to call for an Emergency Bidding War Transparency Act?

      http://bit.ly/FoolishBids

      3. Next, we’re seeing the emergence of a bi-polar housing market, where foreign buyers, local investors, and wealthy households are bidding up prices, while “incomes for recent college graduates are down sharply from 2006,” and the median net worth for graduates under 40 is a paltry $8,700.

      http://bit.ly/2hRus

      So if we care about housing the next generation, another government response is needed to give preference to local first-time homebuyers. Hopefully policy makers and housing professionals can begin to address that question before we head into the next boom bust cycle, which some industry are calling the Great Senior Sell-Off:

      http://bit.ly/SrSellOff

      4. Between now and then, we need to create a more open, competitive housing market free of conflicts of interest, particularly fraudulent business practices, like “designated dual agency.”

      http://bit.ly/DFraud

      5. What to be part of the solution? Let us know if you’d like to meet online or off to learn about our Bidding War Lab. We laid out our original vision for a collaborative approach on Martin Luther King’s birthday, and invite others to help analyze more than 5,000 real estate transactions in Cambridge since 9/26/08, the largest bank failure in U.S. history.

      http://bit.ly/BidWarLab

  • hennorama

    This is not even remotely new.

    “Cash is king” in post-crash periods, especially in economic areas that require large-scale financing of purchases. As most will recall, even the relatively small dollar amounts required for new car purchases dried up when lending was virtually non-existent in late 2008 and 2009. The same was true on a much larger scale in real estate, when the era of “Liar’s Loans” and 0% down payments evaporated, and mortgage lending standards were severely tightened.

    The easy money in real estate has already been made.

    • TFRX

      And some dumb money is being lost by our best and brightest (sic):

      Big Money investors decided to buy up all the foreclosed properties their pals at the banks created during the financial crisis, and rent them out to many of the same people who lost their homes. Then, they started selling securities backed by the rental revenue, just like the mortgage-backed securities from the crisis. Profiting off their own failure: It was Wall Street’s perfect plan.

      There was just one problem: turns out that institutional investors have no idea how to manage rental properties.

      • hennorama

        TFRX — thank you for your response.

        The business model of large-scale buying of single-family housing, then renting it, is still unproven long-term. Wall Street tends to prefer the fast, short-term profit model, which explains the securitization of rental income streams.

        Of course, Wall Street is very good at dreaming up new financial products, selling them, then bugging out. Part of this is driven by Wall Street employing a vast array of very smart people from all fields of study, who have no long-term allegiance to their firms, and are motivated by short-term proffits and bonuses. They can create complex, difficult to understand financial products that can produce a quick score, but that may crash in the future. The potential for future crashes is of little to no consequence for those dreaming up the products, as their massive bonuses mean they suffer little, even if they get fired after the product “blows up.”

        • TFRX

          Hey, no prob.

          There has been somediscussion this hour about the “hyperlocalization” of this phenomenon.

          But in a business that’s all about “location, location, (something else I forgot)”, I’ve read recenlty about places not subject to it, and it sorta follows the whole thing about the beginnings* of the foreclosure/overbuilding crisis. If one follows the long arc of the whole thing it shouldn’t be very surprising.

          My ordinary suburb hasn’t got either thing going on, and I think I like it that way.

          (*I remember the Denver Post, for one, doing some stellar work on this in 2006, really sticking their necks out.)

          • hennorama

            TFRX — again, TYFYR.

            Certainly, using New York as one’s exemplar for real estate in the US as a whole is silly. The market there is not really comparable to the rest of the country, as people from all over the globe are attracted to NYC, unlike Kansas City, for example.

            I have a personal “bubble detector” for the US housing market: TV shows about “flipping” houses. There were several on air when the bubble burst.

            Now we see a similar type of show, except this time it’s “buy a foreclosure, then flip it.”

            That phenomenon is now past its peak.

            As stated, the easy money has already been made.

  • Unterthurn

    How are they bringing the money in? Bank transfers? Liechtenstein, Cayman Islands, Hong Kong, etc.? Otherwise people would be caught in their home countries.

    When a person enters the country they must fill out a customs form declaring how much cash they are bringing in? Even private jets.

  • Sean Irwin

    I would like the guest to discuss if or how foreign investment has impacted rental property prices.

    • Mari McAvenia

      I’d like to hear from others- like me- who have been displaced by this worrying trend. When you’re on “the forced march” though, it’s tough to stay connected with your native community, let alone the greater American society.

  • Mari McAvenia

    Thanks, caller Dave. There’s your hot tip, foreign real estate investors. Quick, everybody go to Connecticut and buy the whole state before prices go up again! (Disclaimer: this is sarcastic commentary, not serious business advice.)

    • Yar

      I am looking at a Kentucky map right now thinking about writing a piece of speculative fiction on a group of South Koreans who attempt to buy an entire county. Lee county stands out. It is close to the 38 parallel, same as South Korea. Think of the conflict and economics of say a group of 50,000 investors buying a whole county with the intention of immigrating. They may be able to buy it on the courthouse steps if economics continue to erode. Who would like to join this as a writing project?

      • Mari McAvenia

        I like the idea a lot. No pun intended. Are you willing to pitch dialogue and narrative text back and forth via email? I’d love to collaborate but – as an experienced, solitary writer – I don’t feel safe experimenting with this method in an open platform, public experiment. One on one, sure. Let’s write it!

  • recliner70

    There were newspaper articles during the last year that showed how these high end condominiums and apartments had property taxes that were lower than other properties in NYC. Is that true? Is the middle class subsidizing the cities services for the foreign and our own super wealthy?

    • StilllHere

      Is the Assessor corrupt?

  • Yar

    In response to the caller, many of these are US registered limited liability corporations owned by foreign investors. Remember, the supreme court made corporations into people.

    • Mari McAvenia

      Yeah, invisible, weightless people who never take up any space in their lavish buildings…Must be a great “life”, eh, to be a corporateperson.

  • F.Y.I.

    If foreign investment can stimulate the real estate market, particularly in places like Detroit and Newark, as well as the economy as a whole, then I’m all for it.

    • Mari McAvenia

      Hah! If you won’t buy in Detroit why would a foreign investor want to?

      • F.Y.I.

        Rock bottom real estate prices are always enticing for savvy investors. I take it you’ve never heard the term before, ‘buy low, sell high’.

        • Mari McAvenia

          Yes, I understand that. However, some US cities are so decrepit and crime ridden at this point that the short-term risks outweigh the potential profits. Besides, how are you going to brag to your friends that you just bought 12 bombed-out lots in Detroit when they’ve just acquired a 20 million dollar penthouse in Manhattan?

          • F.Y.I.

            The real estate market in Manhattan is completely over-priced. Look for a major correction (drop) in prices there. Detroit on the other hand has more potential. Yes, it has its issues, but when you can buy large lots of land for next to nothing…Don’t be surprised if you see investors buying up that land and building gated communities with their own private security.

          • Mari McAvenia

            It’s a realistic projection. I do wonder when this race to buy places like Gary, IN, Detroit, MI, Camden and Newark, NJ, et al, will commence.

            Investors will have to buy whole cities at once and take over the running of water, sewer, schools, trash collection, jails, firefighters etc. Otherwise, I don’t see why the separate governments of these distressed areas would agree to the “big sale”. They’d be putting themselves out of business if they did go through with it. Politicians at any level of “service” don’t willingly relinquish power unless their pockets are stuffed with cash. That’s the way this will happen, I suppose.

          • F.Y.I.

            Good points MM. There’s no perfect solution, but I’m pretty much supportive of any solution that can put unemployed Americans back to work.

        • StilllHere

          Exactly, buy when others are fearful, sell when others are greedy. Now is the time to buy in Detroit, and now is the time to sell in New York and Miami perhaps.

          • FYI

            I agree, there are some excellent opportunities in Detroit.

  • JGC

    EB-5: minimum $1-million investment (cannot be borrowed funds), or $500K if employer investment is made in rural or high-unemployment area.

    $1-million is chump change for people spending $25-million+ on second, third, fourth properties.

    • hennorama

      JGC — it’s likely that the majority of the readers here have no idea what you’re referring to when you write “EB-5.”

      For example, one might think you’re discussing a real estate investment vehicle, rather than the Federal EB-5 Immigrant Investor Visa, which gives “the EB-5 investor and derivative family members … conditional permanent residence for a two-year period,” after which the conditions can be removed, and permanent resident status can be granted.

      In other words, wealthy “Immigrant Investors” can effectively buy permanent residency (as you know).

      See:
      http://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant-investor

      http://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant-investor-process

      • JGC

        Thanks! I was responding to the broadcast in real time, and forgot about the readers who come to the forum later. Thanks for the explanatory links.

        • hennorama

          JGC — YW, of course.

          I was wondering “Why hasn’t anyone responded to JGC’s cogent comment,” then realized some might not know what you were referring to.

      • JGC

        And yet another thought! about “immigrant investors can effectively buy permanent residency” – once they get their permanent residency status, they become “US persons” under the Treasury/IRS laws. That means they must report ALL worldwide income, earned and investment, for FBAR (trigger is $10,000 aggregate holdings) and FATCA (trigger is $50,000 aggregate). It doesn’t matter if they just live here one week out of the year and make their earned income outside the US. (Interestingly, the actual real estate holding, the residence, is not a reportable asset.) However, once permanent residency occurs, FBAR/FATCA becomes the lever for the US government to crowbar their way into all worldwide accounts: investment, banking and insurance.

        There is little avoidance for those that are not even considered to be legal “US persons”. If they hold US assets, they must disclose or they will be considered to be “recalcitrant” and subject to automatic 30% withholding. Will find a link to further explain this situation better than I can.

        • hennorama

          JGC — TYFYR.

          Yes, that is a logical extension, and not surprising. Many jurisdictions try to attract wealthy individuals, corporations, and other legal entities, for the purpose of increasing revenue, whether from the individuals and entities themselves, or from the economic activity they might generate.

          The related paperwork and tax filings are interesting, but mostly details for legal and tax professionals to see to.

          Which also adds to the economic activity, of course.

          • JGC

            Attached link above. I like FAQ #7: Is FATCA really happening? Just like, please, wake me up and tell me it was all just a bad dream….

        • JGC

          From Deloitte accounting and taxes, a bunch of Frequently Asked Questions about how they are to handle their FATCA accounts:

          http://www.deloitte.com/assets/dcom-unitedstates/local%20assets/documents/tax/us_tax_fatca_faqs_061711.pdf

      • ExcellentNews

        This is largely irrelevant for foreign property buyers. Permanent residence is required for employment and federal benefits, not for property ownership. Foreign property owners are considered “passive investors”. All they need is a simple non-resident entry visa to cross the border. Such visas are granted without restriction at the point of entry (unless the person is on some of the DHA lists or from a listed country). Entry visas are not even required for nationals from Canada or the EU (except that such “socialist” nationals insist on getting a stamp in their passports to show they have lived LESS than six months per year in the US – otherwise they may lose medical and retirement benefits from their home countries).

    • JGC

      I am going to add another thought here, after some reflection: $1-million/$500K is pocket change for those multimillionaires/billionaires that would use the EB-5 as a lever to US residency. But it is probably also an obtainable sum for not-so-well-off entrepreneurial immigrants possessing a lot of hustle, to use it as their own entrée to the American Dream. How to differentiate between the two types is a different consideration: there is no purity test for motives involved; entry is just based on a dollar value.

  • Naty

    I just heard a question from a caller asking what legal remedies do neighbors have if a property owned by a foreigner, which he equated with a non-citizen, goes into disrepair. I believe a point of clarification needs to be made: many non-citizens are legal immigrants (permanent residents) who made the US their home or even if they are non-immigrants, they live in the States year round.

    As for legal remedies, I’m no lawyer, but I would assume that the legal recourse would be same for all addressing problems related to absentee-owners/landlords.

    • Gato Pardo

      Good point. I should add, the talk is about foreign umbrellas taking over American real state to launder money.

  • perihelion22

    These are just the money launderers hiding their cash which the Swiss can no longer hide for them. Why is it that I had to describe in detail how I got the money for a down payment for my house, but these guys don’t?

    • Don_B1

      Interestingly, the implementation of Thomas Piketty’s solution to the growing income and wealth inequality, a wealth tax, would make this type of information available, even at a level which would not raise much money or affect inequality.

      But is does demonstrate the hypocrisy of the wealthy who shout “Freedom” for themselves to not report such information while demanding it of everyone else, particularly the poor before then can get any modest help with their financial difficulties.

  • cranfin

    The next big US ‘land grab’ will be for places at top American colleges and universities. It is already well under way as the parents of many of these prospective students are the buyers of these properties being discussed in today’s program.

    See these numbers:
    The number of Chinese students in the United States reached 235,597 in the 2012-2013 academic year, the last period for which the figure is available, up 21.4 percent from the year before, according to the Institute of International Education. That made China the top sending country, responsible for more than one in four foreign students on U.S. campuses.

    • The poster formerly known as t

      China’s middle class and China’s upper class is larger than the total population of the U.S. Most of the expansion in higher education in the U.S. and elsewhere is to p soak up money from comfortable people (middle class) and affluent ( upper class) people from around the world who will pay almost anything for a credential to help them get ahead or , as we see with the perpetual college student, something meaningful to do.

      The middle class Chinese and the upper class Chinese are following our path of success:
      * owning private property in places where real estate prices are high
      * getting a professional degree or three.

      Meanwhile in the U.S., policy makers and the sheeple have been trying to push everyone, even people without the aptitude for college through the college system, and handed out mortgages to anyone who asked for one with the expectations of accelerating returns on real estate and a college education. Those accelerating returns have yet to materialize.

      For a while, it was my belief that the Chinese were smarter than the U.S. and were learning from our economic mistakes but I think that they, meaning the Chinese Communist Party are caught up in slavish imitation of the U.S. capitalist model.

      To their credit, their real estate bubble has mainly resulted in uninhabited cities and they have been able to export a lot of their college graduates to other parts of the world.

  • David Fechter

    How much money is the City of New York receiving in property taxes on these foreign owned properties?

  • JGC

    All cash purchases: for Canadian “snowbirds”, it is recommended, if possible, to purchase their US properties in cash. A sterling FICA score established in Canada is of no use to American banks when it comes to taking out a loan for purchasing a US property. If a full cash payment is not possible, then it is recommended Canadians take at least 6 months to establish a credit history in the US to get a more favorable loan rate, and then still put down 30% to 50% of the price.

  • StilllHere

    Thanks for this meaningful story.

  • twenty_niner

    Good synopsis:

    “Why Housing Will Crash Again–But For Different Reasons Than Last Time”

    http://charleshughsmith.blogspot.com/2014/07/why-housing-will-crash-again-but-for.html

  • Gato Pardo

    It should be illegal for this to happen is the worst type of money laundering.

  • Human2013

    Please take a peak at The American Interest this month. There is a wonderfully crafted article,, “The Twin Insurgency”

    “States within the global political economy today face a twin insurgency, one from below, another from above. From below comes a series of interconnected criminal insurgencies in which the global disenfranchised resist, coopt, and route around states as they seek ways to empower and enrich themselves in the shadows of the global economy. Drug cartels, human traffickers, computer hackers, counterfeiters, arms dealers, and others exploit the loopholes, exceptions, and failures of governance institutions to build global commercial empires. These empires then deploy their resources to corrupt, coopt, or challenge incumbent political actors.

    From above comes the plutocratic insurgency, in which globalized elites seek to disengage from traditional national obligations and responsibilities. From libertarian activists to tax-haven lawyers to currency speculators to mineral-extraction magnates, the new global super-rich and their hired help are waging a broad-based campaign to limit the reach and capacity of government tax-collectors and regulators, or to manipulate these functions as a tool in their own cut-throat business competition.”

    http://www.the-american-interest.com/articles/2014/06/15/the-twin-insurgency/

  • Human2013

    Abby, that’s wonderful. How long do you think this property will remain “affordable”?

  • Mari McAvenia

    Listened to this program twice today because the subject has impacted me and my native born family, repeatedly, for years.
    America appears to be a giant DisneyLand, now, to the eyes of foreign investors due to our own hoo-hah , exceptionalist propaganda. Are spoiled real estate brokers as hard-up as laid-off manual laborers, now, that they need to slash the throats of their friends and neighbors to stay in their own overpriced districts? Sure looks that way.

    • hennorama

      Mari McAvenia — a few questions, in an effort to understand your comment:

      1. In what way(s) have you and your “native born family” been impacted by Foreign Buyers In American Real Estate?

      2. Have these impacts been positive, negative, or some mix?

      3. Exactly how are so-called “spoiled real estate brokers … slash[ing] the throats of their friends and neighbors …”?

      • Mari McAvenia

        May we correspond in another format? I’d like to ask the same questions about your genealogy and property holdings/forced sell offs. Helluva game, ain’t it?.

        • hennorama

          Mari Mcavenia — thank you for your response, despite its unresponsive and seemingly defensive tenor.

          My questions were posed, as stated, in an effort to understand your comment. There is no “game” afoot.

          In addition, I posed no “questions about your genealogy,” and had no idea about any “property holdings/forced selloffs” that might involve you, and/or your “native born family,” which is one reason for the questions.

          I infer from your response:

          1. You are not interested in explaining your comment, or in being understood.

          2. You had some sort of negative experience that you do not wish to discuss.

          Please correct any misinference(s) in the above.

          If you wish to “correspond in another format,” please give me your contact information.

          Thanks again for your response.

          • Mari McAvenia

            Nope. You’re out.

          • hennorama

            Mati McAvenia — thank you for confirming my inferences.

          • Mari McAvenia

            You’re welcome. By the way, my name is Mari not Mati. Good night, sleep tight. We shall meet again.

    • Don_B1

      Real estate brokers have always been willing to sell their community down the drain, from those that encouraged a Black family or two to buy in a middle- to lower-income residential area and then buy up/sell the neighboring homes cheap as they built the case for “white flight.”

      But that also depended on ingrained attitudes of those “fleeing.”

  • hennorama

    From Realtor.org, some information which gives some perspective (emphasis added):

    Highlights

    $92.2 Billion of purchases sold to foreign buyers, 12 months ending March 2014

    Sales split approximately 50/50 between resident and non-resident foreigners.

    Foreign sales approximately 7 percent of $1.2 Trillion EHS [Existing Home Sales] market.

    Source:

  • KOVAINANBAN

    Foreigners are not only buying homes, they are also taking up top college admissions.

    • The poster formerly known as t

      Since foreigners make up the vast majority of people on this planet, since the U.S. has a monopoly on top colleges, and the U.S. college system is highly globalized , that respectable U.S. colleges often market to those who can pay full amount or are top students, it would make sense that foreigners are taking up top college admissions.

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