The global real-estate industry is being redefined as a result of changing tenant and investor outlooks, extensive use of new property tech and the presence of new business models and competition in the markets. Aided by new technologies, modern commercial real-estate companies are focused on retaining the core aspect of the business, the importance of location. In addition, technological advances now offer real estate investors augmented experiences and show how physical spaces can be consumed optimally. All of this has led to an increase in capital inflow in the industry.
In the first half of 2018, global commercial real-estate transaction volume reached a figure of $341 billion, a 13% year-on-year increase. The US alone registered a figure of $122 billion, representing over 11% year on year growth, says the 2019 Deloitte Commercial Real Estate Outlook Report. The United States is indeed one of the most favored commercial real-estate markets in the world.
However, there are significant challenges to overcome if we want greater capital inflow from other countries, which face considerable barriers for investments in the United States. Along with that, here are some challenges that exist today for real-estate investments in the US.
Complicated Laws and Investing Process
Foreign investors face difficulties in investing in US real estate due to the presence of tough laws and bureaucratic complications. The level of capital commitment is high. Rather than paying 20% of the total amount as down-payment, foreign investors could be asked as much as 50%-60% as cash down payment. Not everyone can afford such a high upfront cost. Even if foreign investors have good credit histories in their own country, that doesn’t apply in the US. They have to put up several thousands of dollars for a small conservative investment. There are other barriers, such as citizenship, US bank accounts, accreditation and access to the right fund managers and sponsors, which makes foreign investors avoid US real-estate markets, says an article on RealtyReturns.io.
Ability to Find Good Properties
For investors settled abroad, finding the right properties could be a challenge. Researching and closing deals require travelling physically to different locations, which could be difficult for overseas residents. It could take more than 6 to 12 months to find a good property, involving multiple international trips. Then there are fees to be paid to real-estate agents, several of whom might not have the right knowledge of the industry or access to the right properties. Sure, property tech is fast emerging as a viable solution, which can enable international buyers to explore real estate remotely, but the use of predictive analysis, IoT technologies and business intelligence by real-estate companies is still in its nascent stages.
Climate Change Poses a Risk for Real Estate Investments
We know the stance of the present government (or lack of it), when it comes to addressing climate change. This poses a threat to real estate investments, as extreme weather conditions are becoming rampant in the country. A recent report released by the Urban Land Institute says that failure to address such risks will lead to increased exposure to losses, illiquidity and lower incomes in the industry. Between 2005 and 2017, there was an estimated loss of $7.4 billion in property valuation due to the floods in Florida, Georgia, North Carolina, Virginia and South Carolina.
Both residential investment and consumption spending on housing services contribute an average of 15% to 18% to the country’s GDP, says the National Association of Home Builders. The industry is too valuable to be ignored. Although technology has been a game changer, other factors, such as tax reforms and regulatory changes, still pose challenges for investors. Experienced CRE teams that are adept even at cross-border investments are the need of the hour.