Research article

Location by Location: USA

Prime markets of many US cities have already exceeded their former peaks.

The US economy is in its fifth year of recovery and the housing market has now seen three years of growth from its lows of 2009. At a national level, as of April 2015 prices were up 31.2% from their 2009 trough, and stand within 12.9% of their 2006 high. The prime markets of cities such as San Francisco and New York have already exceeded their former peaks.

The US residential market is among the world’s largest. Some 5.49m properties changed hands in the year to June 2015, (a figure down by 24% on 2005 numbers). The market is largely domestic but foreign buyers are present in key locations. According to the National Association of Realtors, international buyers make up 7% of the market in dollar terms (an increase of 35% over 2013 levels). These are evenly split between resident and non-resident foreigners. The Chinese are the largest group of foreign purchasers in dollar terms, at 24%, up from 19% in 2013. Canadians are top by sales number with those from Mexico, India and the UK rounding off the top five.

US cities have been undergoing a renaissance in the last few decades, a trend accelerated by the rise of new technologies and creative classes attracted to vibrant urban environments. Cities actively provide the human experiences and interactions that allow for the inception, nurturing, funding and development of new ideas and products.

New York and San Francisco, both with large and growing tech sectors, have seen their markets moved by this trend. Existing run-down neighbourhoods and districts have been colonised by artists and tech entrepreneurs and reinvigorated. Established neighbourhoods have also benefited and values have been pushed to new highs.

Figure 27

FIGURE 27USA market performance (2006 – 2015)

Source: S&P Case Shiller, National Association of Realtors

Buying a property as a non-resident in the US

There are no restrictions on buying and owning real estate in the US, and property may be occupied as a second home if the purchaser’s passport permits. For longer stays, residency may be achieved via a work visa, while immigrant investor visas can be obtained with a minimum investment of $500,000 – $1,000,000.

In markets like New York, where there is a high proportion of cooperative buildings, prospective purchasers require the approval of the building’s board (in common with domestic buyers). This involves sharing financial statements and tax returns and a face-to-face interview. Restrictions may also be placed on owners ability to let their property. This often places a practical barrier in the path of an overseas investment purchaser. Condominium purchase can be almost as rigorous.

Property taxes are punitive by global standards, comprised of a variety of local and country levies that can cost around 8% of the assessed value over a five year hold. Sales costs are high with agent fees at around 6%.

New York

New York rode out the global financial crisis better than much of the rest of the US. Prime residential prices are back at 2007 levels, while rents have exceeded former highs, underpinned by solid occupier demand (68% of households in New York rent).

New York is a major global tech city and a shift in occupier demand is shaping its corporate office market, and bringing more young renters to the city. As a result, gross mainstream rental yields are relatively high, at 5.9%.

At the very top end of the market, New York is one of a handful of global cities (including London and Hong Kong) in which the global super-rich most commonly hold residential property. This reflects the city’s status as one of the most important world cities. Super-prime price records have been set at $13,000psft. A raft of new condominium development catered to this group has been delivered in recent years, delivered in iconic residential towers that include One57 and 432 Park Avenue.

There are, however, some possible impediments to investment in New York. These fall into two main categories: associated costs and housing tenure. In common with the rest of the US, the entry, holding and exit costs associated with property are relatively high.

New York’s prevalence of co-operative apartments which foreigners find more difficult to buy pushes investors toward the relatively restricted 30% of stock that is condominium tenure.

Prime property prices are back to 2007 in New York


Miami is a cosmopolitan city and gateway to and from Latin America. A major centre of finance and international trade, it attracts a range of business and leisure buyers. Prime property is concentrated in Miami Beach (technically a separate city) an area famous for its art deco buildings.

Miami was a hotspot of the US housing market boom, the recipient of a huge amount of condominium development. Completions peaked at 16,220 units in 2007 and fell to a low of just 1,140 in 2011. When the market crashed, prices fell by more than half, one of the most severe price corrections in the US. Since this low, the market has rebounded strongly. Of a pipeline of 17,000 of units, 70% have been pre-sold.

The fact that Miami is dominated by condominiums makes it appealing to international buyers, and it is this group that drove recovery in the city. In contrast to the pre-2006 boom, Miami’s recent real estate recovery has been built on equity rather than credit, and a new wave of condominium development has emerged, fuelled by equity-driven Latin American buyers. As of June 2015, prime prices in Miami stand just 2.9% below their former high, according to Savills figures.

Rental vacancy rates are some of the lowest in the US. Over half of Miami’s population is from Latin America, a group which represents 70% of all overseas purchasers. Buyers from South America view Miami as a home from home and a stepping stone into the rest of the United States.

Top countries of origin are Venezuela (16%), Argentina (13%), Brazil (8%), Colombia (8%) and Peru (8%). Buyers from Europe, notably the United Kingdom, are also present in the upper tiers of the market. Immigration is helping to fuel population growth which is forecast to increase 15.2% by 2030.

A new wave of condominium development has emerged in Miami

Los Angeles

The Los Angeles prime markets are characterised sprawling suburbs of large detached homes. Bel Air, Beverly Hills and Holmby Hills are the best known and most expensive, in the north of LA, with many high-profile residents. These are quiet, spacious, manicured neighbourhoods, with relatively few amenities. Other prime neighbourhoods, such as Palos Verdes Estates, Rancho Palos Verde and Manhattan Beach are coastal communities with views of the Pacific, coastal cliffs and access to beaches.

Urban living is undergoing a revival in Los Angeles, with Downtown LA experiencing gentrification in recent years, fuelling a surge of new condominium development. Luxury condominium buildings are concentrated in Downtown Los Angeles, Century City, the Wilshire Corridor, and at Marina del Rey.

Outside these areas, residential development is typically restricted by height, depending on the city and ordinances, to a maximum of 3-6 stories. LA saw a strong demand for condominiums in the first part of 2015, with sales up 13.5% on a year-on- year basis, compared to just 1.1% increase for single family homes.

As a west coast city, Los Angeles is strategically positioned to attract Asian buyers. Major overseas buyer groups in the LA prime markets include the Chinese, Koreans, Japanese, Singaporeans, and Malaysians. Europeans, including the British, are present alongside Australians, a relative minority.

Los Angeles is especially attractive on the world stage, given its high global profile due to the entertainment industry. Prime prices in the city grew by 5.2% in the year to June 2015 and now stand just 2.2% below their former high. The city is second only to New York for the amount of cross-border investment it receives into its commercial real estate (11%).

Los Angeles is especially attractive on a world stage

San Francisco

San Francisco is thriving and fast-growing attracting large numbers of young professionals, tech entrepreneurs and other creative people. It has seen an increasing number of successful people migrating out of Silicon Valley in search of an urban, rather than suburban, lifestyle.

A small city, just 46 square miles in size, its compactness and walkability is central to its appeal, but also means that new housing delivery is restricted by a very limited supply of land.

Strong demand fuelled by a buoyant local economy, coupled with this restricted supply has put upward pressure on prices. Prime prices grew by 25.7% in the two years to June 2015, bringing values to 27.9% above 2007 levels, outperforming New York, Los Angeles, Miami and Chicago over the same period.

San Francisco districts on the rise include Hayes Valley, the Mission District and Mid-Market – the latter having seen an influx of tech firms setting up business in the neighbourhood.

Established prime neighbourhoods include Nob Hill, Pacific Heights (townhouses and apartments) and Sea Cliff (single family homes). All markets are characterised by very low levels of supply, with inventory at its lowest level since 2009.

San Francisco’s rental market is especially strong, with occupier demand driven by well-paid young professionals. Rents for mainstream property in the city have recently overtaken New York and are now among the most expensive in the United States.

With rental growth outpacing capital value growth,mainstream gross yields in excess of 7% are achievable, although investors face high transaction and holding costs.

Demand for property in San Francisco is buoyed by buoyant local market

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