Weakening dollar, steady or declining prices pique interests
By Leslie Wines
ASSOCIATED PRESS
Sunday, January 13, 2008 

NEW YORK — Panden Rota, a Nepalese producer of fine rugs, is about to become a Manhattanite, the owner of a sumptuous apartment in the luxurious downtown neighborhood of Battery Park City.

His primary residence will remain Katmandu, but his new home will allow him to spend more time at U.S. showrooms that display his rugs and with a brother and sister in New York. "I looked at many places, and I decided that a Manhattan apartment will always hold its value," he said.

Rota is part of a growing wave of foreigners who buy second homes in the United States for work and play and as an investment.

Cosmopolitan cities such as New York and Miami have long served as second homes for affluent and accomplished foreigners. But the trend is growing. One in five American real estate agents has sold a home to a foreign investor in the past year, according to the National Association of Realtors.

The events of 2007 have made the United States much more affordable for international home buyers. Severe dollar declines against the euro and pound have made U.S. homes much cheaper for Europeans. But even foreign buyers without that sort of currency advantage are benefiting from sharp drops in housing prices at a time when problems in mortgage lending are keeping many Americans out of the market.

At the same time, many foreign real estate markets, especially in Europe, have experienced sharp increases in home prices.

"There are markets like Paris and London and the South of France where some home values have gone up 100 percent," said Christian Voelkers of the Hamburg real estate agent Engel & Volkers Group. "At the same time, U.S. prices have either stayed put or come down."

Volkers' firm is eager to take advantage of this opportunity. Engel & Volkers, which caters to wealthy clients, plans to open 300 residential sales offices across the United States in the next few years. So far,  it has offices in Florida, Connecticut and New York. The company said it is on track to open 30 more locations on the East Coast by the end of 2008.

The currency advantage is greatest for British citizens, given that each pound has been worth more than $2 recently; it was worth $1.96 on Friday. By contrast, the euro was worth about $1.48 on Friday, and the Canadian dollar in recent weeks has hovered near parity with its U.S. counterpart.

"At this point, the English are more actively looking in Manhattan than American buyers," said Ivan Hakimian of New York's Itzhaki Properties.

Mia Wilkinson, a transplanted Englishwoman who works for Rubloff Residential Properties in Chicago, deals often with British and other foreign executives transferred to the United States for a few years. ""Before, people would stay in corporate rentals," she said. "But now these same people are turning around and buying properties."

Wilkinson, who has been in the United States for six years, has bought property in Chicago.

The expansion of foreign real estate investment also means that areas that once were not popular with international buyers are now receiving interest. Doug Aitkin, who works for North Carolina's World Trade Center, said the Research Triangle area, which includes the cities of Durham, Raleigh and Chapel Hill, is now getting inquiries from French and Scandinavian home buyers, a new phenomenon.

Constantine Valhouli, a principal with Boston's Hammersmith Group, which advises real estate developers, said foreign home buying appears to have varied drivers in different cities. In Boston, property purchases by foreigners are linked to the city's booming biotechnology and life sciences
industries. In addition, Boston venture funds are drawing large numbers of German, Swiss and Irish workers, some of whom take advantage of favorable dollar rates against the euro to help buy some real estate.

In Los Angeles, demand from wealthy South Koreans for attractive condo towers and mid-rise buildings has helped revitalize the once forlorn downtown neighborhood, said Johanna Gunther, a senior vice president with the Ryness Co. there. "Downtown has not been an attractive urban residential market until recently, but Korean demand has been a big factor in the change," she said. In recent years, the South Korean government has loosened restrictions on foreign exchange transactions, facilitating a large rise in Korean purchases of U.S. properties.

The National Association of Realtors found that 7.3 percent of the houses sold in 2006 in Florida went to foreign buyers. Miami, in particular, is a magnet for buyers from throughout Latin America and Europe, helping to mitigate the fallout from the area's housing slump.

Despite the new waves of foreign buyers in many U.S. markets, few suggest international investors by themselves can offset the nation's housing crisis, brought on by the failure of many subprime mortgage loans. Hammersmith Group's Valhouli stressed that the fact that international investors are helping to prop up some troubled housing markets only emphasizes the level of stress in residential real estate.

"Relying on foreign real estate investors is fundamentally as risky as relying on subprime mortgages," he said, noting that both phenomena distort demand and can conceal the depths of the problem U.S. home buyers and sellers face. "Foreign buyers aren't going to save the U.S. housing market."