Report: How One Foreign Country Is Driving Up Housing Costs in These 15 States
In 15 states across the U.S., buyers from a single foreign country are snatching up massive amounts of prime real estate to the tune of at least $6.1 billion worth of property in a one-year period from April 2021- March 2022.
The National Association of Realtors revealed in a recent report that the largest percentage of these buyers come from China. And presently, the Biden administration has no plans to stop the practice.
The postal codes in the United States with the highest quantity of foreign nationals scooping up property have seen housing prices spike by as much as 8 percent, as reported by the Wharton Business Journal of the University of Pennsylvania. This is exacerbating an already existing problem.
Wharton Real Estate Professor Benjamin Keys explained, “The big picture is we have an affordability crisis for housing in the cities where the jobs are,” Keys said. “One of the real tensions in the U.S. housing market is that the places that are seeing sharp job growth are not creating new housing quickly enough to accommodate that job growth.”
Florida is tied with Indiana for third on the list of 15 states most popular with Chinese buyers, with California and New York clocking in at first and second, respectively.
A 2020 report from the Wharton School of Business at the University of Pennsylvania revealed an unexpectedly simple reason that so many wealthy Chinese nationals are purchasing enormous quantities of housing in the United States: It’s a tax dodge.
Chinese nationals are dumping billions of dollars into the American real estate market, distorting already volatile city markets and driving property values up through the ceiling to get out of paying the punishing income taxes that Beijing levies.
They’re avoiding other nations closer to home, such as New Zealand or Canada, where foreign purchasers can expect to pay anywhere from 12.6 to up to 50 percent of a home’s value in additional taxes.
Wharton Business Journal noted that the United States does not impose any type of tax restraint or penalty upon foreign buyers.
According to The Daily Mail, “Singapore, Hong Kong, the Canadian regions of British Columbia and Ontario, Victoria in Australia and New Zealand all imposed additional taxes on foreign buyers of residential property in a bid to avoid a huge spike in prices caused by demand from foreign buyers.”
“Singapore introduced its tax, known as stamp duty, in 2011, and it now sits at 20 percent. In Hong Kong, stamp duty sits at 30 percent for non-resident property buyers. People buying second homes are also hit with a similar amount of tax.”
The NAR survey indicated that 58 percent of the Chinese buyers were purchasing their American properties in cash, with 52 percent intending to make these homes their primary residence and 25 percent purchasing them for seasonal or vacation use. A large majority of these homes purchased were single-family detached homes at 66 percent, with a mere 10 percent preferring condominiums and 9 percent townhouses.
The NAR’s Chief Economist Lawrence Yun elaborated on the impact of cash purchases on the American market: “Foreign buyers … are likely to step up purchases, as those making all-cash offers will be immune from changes in interest rates.”
“In addition, international flights have increased in recent months with the lifting of pandemic-related travel restrictions.”
This places most American homebuyers, particularly those purchasing their first homes, at a severe disadvantage, as CBS news reported in February.
“In many cases, it’s also no longer enough for a prospective buyer to come prepared with a down payment and a pre-approved mortgage,” according to the outlet. “About 30% of homes were bought with all-cash offers in 2021, up from about 25% in 2020, according to real estate firm Redfin.”
According to the NAR, the state rankings for percentage of the properties purchased by Chinese buyers stands at:
- California with 31 percent
- New York with 10 percent
- Florida and Indiana, tied with 7 percent
- Arizona, Missouri and Oklahoma in a three-way tie at 5 percent
- Colorado, Connecticut, Iowa, Illinois, Hawaii and Massachusetts, tied at 4 percent
- North Carolina with 3 percent
- South Carolina with 2 percent
According to the NAR report, Canadians were the second largest group of foreign buyers of U.S. real estate, spending $5.5 billion in the one-year period. Next came India at $3.6 billion, Mexico with $2.9 billion, Brazil at $1.6 billion and Colombia with $1 billion.
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