The rush to invest in US property is reversing, with Australian and Canadian buyers starting to liquidate their assets and bring money back home. Meanwhile American and UK investors, buoyed by their strengthening currencies and economies, have Europe in their sights as they hunt for bargains overseas.
Australia’s triple whammy
In Australia, investors have enjoyed a triple advantage with US property in recent years. They originally got into the market when foreclosures were taking place and house prices were rock bottom. The Australian dollar was also above parity with the US dollar, resulting in maximum purchasing power.
Since then they’ve enjoyed growth both from property prices and rental income. According to the US National Association of Realtors, median prices grew 11.5 per cent in 2013 and 5.7 per cent in 2014.
Lastly, with AUD/USD now down 30 per cent since its mid-2011 peak, they are realising huge exchange rate gains.
“We’re seeing a lot of investors starting to sell up and bring the money back. The correction in the Australian dollar is a great opportunity to take advantage of,” says Jonathan Sermon, Senior Alliance Manager, OzForex.
Canadians repatriate funds
In Canada, CanadianForex has seen a doubling in the amount of money coming back from Canadians who are selling property overseas. Conversely investment by Canadians into the US has stalled, and is down nearly 50 per cent.
Based on OzForex figures, about US$12 billion of currency flowed out of the US over the past 12 months. While this figure is worldwide, much of the US dollar trade is with Canada, and cross-border property investment is the most popular reason to convert dollars.
David Nicholls, head of partnerships for the North American division of CanadianForex, attributes the outflow to rising home prices in the US and the sliding Canadian dollar. “After a long run in the US market, some of the early investors are taking their profits.”
Americans: Paris, je t’aime
Meanwhile in the US and UK, two countries with stronger currencies, investors are increasingly looking at overseas property markets. Europe is a key focus because prices in some markets halved during the financial crisis and still haven’t recovered.
The number of US clients buying properties in France increased nine-fold in 2014 from 2013 at USForex, and 2015 is looking even more promising. From its low point in 2014 to now, the US dollar has strengthened by at least 23% against the Euro, a rate not seen since 2003.
Shaun Dash, Alliance Manager, UKForex says the majority of clients he assists are also located in the US and purchasing in Paris. “They normally purchase with a mortgage of up to 60% as interest rates are extremely interesting. Values range from €180,000 to €1.5 million.” Real estate agents report that high net worth buyers are also circling around the South of France.
It’s not only France that is capturing American attention. USForex has also seen a recent doubling in US buyers transferring money to purchase property in Germany. Spain is another market on the US radar.
Britain invades Europe
UKForex has similarly witnessed a big rise in British clients buying property in Europe, mainly due to the British pound gaining over 20% against the Euro over the past two years.
“The UK election result has also given the market a further shot in the arm. The vast majority of British clients purchase in areas such as France, Italy and Spain,” Shaun Dash says.
Tahminae Madani, from France Home Finance, says they’ve seen a “marked increase” in the number of US, UK and Australian clients contacting us for French mortgages and Paris property search since January this year.
“We are in the midst of the perfect storm of a weakened Euro, historically low interest rates for French mortgages along with stable prices in Paris and significantly reduced prices in the countryside,” Madani says.
Twenty year fixed rate French mortgages went from 4.20% annually in 2014 to 2.55% – an enormous drop. While the 2014 French Notaire’s Parisian real estate price report stated an overall drop in price of 2.1%, France Home Finance says prices are starting to stabilise. Rents are also forecast to rise 3.5% in 2015, outpacing a predicted 2.5% for annual home price gains.
“We strongly feel that Paris apartments remain undervalued compared to New York and London. We predict that there will be a price increase to come in the months ahead. As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market,” Madani says.
Investors preferring to hold onto US property investments could still enjoy further gains in 2015. Median house prices are forecast to grow slightly faster than last year, at 6.0 per cent according to the National Association of Realtors.
Rental yield is also rising strongly, particularly in certain areas as measured by the Zillow Rent Index. A number of factors are driving rents in the US, including increasing demand as mortgages become less affordable and a relative lack of rental construction in recent years.