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American buyers are buying properties abroad

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Laetitia Laurent knows the value of looking far and wide for a good deal. The Florida-based business owner and her husband had been hunting for a second home for five years before snagging an incredible bargain — in Paris.

She made an offer in January on a 415-square-foot, one-bedroom apartment in the coveted Golden Triangle area between the Champs-Élysées and the Seine, and closed in June.

While the U.S. housing market has been slowing down — thanks to elevated home prices and mortgage rates — there’s been a growing trend of wealthy American buyers investing in overseas homes, buoyed by favorable exchange rates and a strong dollar.

“I think we saved probably close to $100,000 between the time we made the offer and the time we closed,” says Laurent, who will use the property as a vacation home and a space to host clients for her interior design firm, Laure Nell Interiors. The euro-dollar exchange rate plunged over 12% last year, falling below parity in August.

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Whether you’re a retiree looking to spend your golden years somewhere warm and tropical, or someone investing in a second home for some extra rental income, international properties are currently all the rage.

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American buyers are buying properties abroad

The numbers show a clear trend. Coldwell Banker surveyed wealthy American buyers and noted that 67% of respondents own properties outside the U.S. According to Wealth-X figures, the number of high net worth Americans who purchased property abroad in 2022 was also expected to rise by 14% from 2021 and 29% from 2019.

Kelly Cutchin, country manager USA at global payments services provider Moneycorp Americas, says some of these buyers may be looking for an investment property or vacation home, while others could be “jumping the pond” and looking to relocate entirely.

Central America is currently the top preference for affluent Americans, followed by Canada, Mexico, Asia, South America and Europe.

Some countries, such as Portugal, also offer “golden visa” programs, in which wealthy individuals obtain residency or citizenship in exchange for a substantial investment, like in real estate.

The Trend report indicates that while the 55+ age group has the largest share of foreign property ownership, the 25-34 age group has moved up from last to second position.

Cutchin says this is due to generational wealth. “There are a lot more high net worth individuals (HNWI) under the age of 30 than before. These youngsters are looking to diversify their portfolios and starting young is almost never a bad idea.”

An October Bank of America study indicated that rich young Americans are looking to alternative investments, such as real estate and cryptocurrency to boost their wealth.

Why overseas locations may offer more perks

Laurent says that aside from her apartment’s Haussmanian architecture, the declining exchange rate and low mortgage rates in France at the time made it an excellent investment. Even now, French mortgage rates are just above 2%, while American rates remain over 6%.

American home prices, inflation and the political climate may be contributing to buyers looking abroad. If you’re thinking of relocating to a different country, you could sell your home for a high price now and potentially score a lower price elsewhere.

 

The rise of remote work and social media posts with enticing photos and reels of different countries could also encourage buyers to look outside of the U.S.

Cutchin says some buyers may be motivated by others in their social circle buying homes overseas. “We all have a bit of FOMO, right? ‘Everyone in my country club is doing it — so I want to have that same status as Suzy, and so therefore, I too need to buy a property in Paris, and we can vacation together with our families.’”

What US buyers need to know

Cutchin says the most important thing is to do your research. Speak to a real estate agent and an international tax consultant, and look into foreign ownership laws.

In some countries, you may need to afford an all-cash purchase. You could look into financing through your local bank or foreign mortgage products — but Cutchin says these can be limited and could require a larger down payment than what you might see in the U.S. “It’s not uncommon to see a deposit amount of upwards of 30%.”

You may also need to account for extra costs, like translator, tax and legal fees, international bank transfer fees and insurance.

Laurent, who has dual American and French citizenship, went through a French bank to secure her mortgage and needed to purchase life insurance to protect her loan.

Although Laurent benefited from the exchange rate declining last year, Morgan Stanley foreign exchange strategists are predicting it to rise back to $1.15 by the end of 2023. You could consider speaking to a currency expert to lock in your rate before making an investment overseas — for example, Moneycorp allows clients to lock in an exchange rate for up to two years.

“Let’s face it, if the rate moves against you 10 cents between now and June of next year — when you go to actually facilitate that transaction — it might actually place you in a situation where you can no longer afford to make that investment, or you’re not as comfortable as you were previously,” Cutchin says.

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Piles of commercial-real-estate loans at banks may be worth just 77 cents on the dollar — if that

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The swift collapse of Silicon Valley Bank earlier in March put a spotlight on potentially painful losses lurking at banks from trillions of dollars in commercial-real-estate loans on their books.

It also sparked debate over what piles of older loans on commercial properties might be worth now that low interest rates and peak real-estate prices have vanished, and as stress in the banking system makes credit more scarce.

The sale of $72 billion in assets from the failed Silicon Valley Bank by regulators at a $16.5 billion discount, which pencils out to about 77 cents on the dollar, offers a glimpse into a new clearing price for commercial-real-estate loans.

“The way I look at it is: [that] the Silicon Valley Bank trade created a baseline for the market,” David Blatt, chief executive at CapStack Partners, a credit fund that buys commercial-real-estate loans from banks and originates short-term bridge loans and mezzanine debt.

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“To me, that’s the top end, not the bottom end, for commercial-real-estate loans,” said Blatt, who studied the bank’s loan exposure.

Unlike stocks or bonds, loans in the estimated $5.5 trillion commercial-property market don’t sell in a transparent way, which means pegging their values can be difficult.

To be sure, not all of the sold assets of Silicon Valley Bank were related to commercial real estate. The bank reported about $13 billion of real-estate exposure at the end of 2022, according to a quarterly filing, which categorized about $2.6 billion as loans on commercial real estate.

Still, Blatt and other commercial-real-estate veterans steeped in previous bank-failure cycles told MarketWatch the sale provides a “mark” in terms of where loans actually changed hands in the wake of two regional-bank failures.

​”Everybody is dusting off their old playbook,” said Jack Mullen, founder of Summer Street Advisors, a commercial-real-estate advisory firm that’s been involved in multibillion-dollar workouts. “There just hasn’t been much distress for years.”

Toll of higher rates

As with bonds, the Federal Reserve’s rapid pace of interest-rate hikes has cut the value of older, low-coupon commercial-real-estate loans. Mullen ​said recent bank failures also make it harder for banks to “sweep it all under the rug,” which ​likely means more loan sales by banks.

“People are not going to let it carry into next year,” he said. “On the regulatory side, it’s coming right to the front of the line. People are supermindful of it.”

Richard Hill, head of real-estate strategy and research at Cohen & Steers, recently argued in a report that while banks hold an estimated 45% of all commercial mortgages, the debt isn’t a systemic risk for banks.

“We previously argued that [a decline of 10% to 20% in commercial-property prices] was reasonable to expect, and we now believe it could be 20–25%,” Hill wrote. He also said higher loan standards in the wake of the 2007–08 global financial crisis can provide lenders a cushion if property values fall.

In the reeling office sector, however, the value of older office buildings in Manhattan could tumble 70%, said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University’s business school, in a talk Thursday about turning older offices into homes hosted by the Volcker Alliance.

“Forty percent of that is just coming from interest rates alone,” Van Nieuwerburgh said, adding that remote work, current regulations and other pressures on the office-building market contribute to the value drop.

Write-down implied

Real-estate investors also will be watching the sale of $60 billion of Signature Bank loans. Newmark Group Inc. was hired to market the assets from the failed bank that were excluded in a previous sale of its holdings.

“What everybody has been operating under is this hold-to-maturity veneer,” Blatt said of banks that have continued to value loans at 100 cents on the dollar, or par.

“There’s just no way these things get resolved at par,” Blatt said. With the discounted sale of Silicon Valley assets, “the write-down is kind of implied.”

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The spring housing market could bring a reckoning for realtors in Canada

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Realtors’ fate depends on whether buyers and sellers return in force and how that will affect prices

At the height of the COVID-19 pandemic, when many of her peers were binge watching Netflix shows, Toronto’s Sewit Tamene decided she would finish getting her real estate licence, a process she had started almost a decade earlier.

But by the time she completed the program in September 2022, the booming pandemic housing market had started to turn cold, with sales and new listings on the decline and prices rolling over, too. For Tamene, the timing was bad, but at least she still had a full-time job elsewhere. For her friends trying to launch careers in the industry, the transition has been more difficult.

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“Maybe if they already had a history and they already had a client base and they were already sort of successful, it wouldn’t be hitting them as hard — but if you’re a newer agent, I definitely think that it’s a little bit more difficult to get going,” Tamene said. “Some realtors are definitely taking a pause or leaving the industry because there’s just not enough cake for everyone.”

The pressure on a swelling real estate profession — membership at the Canadian Real Estate Association (CREA) has risen 17 per since the end of 2020 to 160,000 while the number of brokers and salespeople represented by the Toronto Regional Real Estate Board is up 25 per cent since March 2020 — is just one of the storylines making this spring’s real estate market a make-or-break affair.

There’s just not enough cake for everyone

Sewit Tamene

The big questions, the ones that will decide realtors’ fates, are whether buyers and sellers return in force and how that will affect prices.

The Bank of Canada’s dramatic interest rate hikes over the past year have reshaped lending markets, making homes even less affordable and pushing many would-be homebuyers to the sidelines.

Figures released by CREA on March 15 show that actual (non-seasonally adjusted) transactions in February 2023 came in 40 per cent below a strong February 2022. New listings also continued to fall in February 2023, decreasing by 7.9 per cent month over month and hitting record lows in some cities, including Calgary.

Prices, too, have come under pressure. The composite benchmark price for a home in the Greater Toronto Area (GTA) peaked at $1,370,000 in March of 2022, according to figures from TRREB, but as of February were down 18 per cent from there. Vancouver’s price decline has been steeper, according to the region’s real estate board, off 20 per cent from a high of $1,374,500 last April.

Industry observers have suggested the usually busy spring market might be the turning point that lures buyers and sellers back into the game, but that is hardly assured, and just where the balance of supply and demand lands will have significant consequences for the industry and the economy.

Homes in Toronto.
Homes in Toronto. Photo by Cole Burston/Bloomberg

John Pasalis, president and broker of record at Toronto real estate brokerage, Realosophy, thinks demand has the upper hand. He said his brokerage has had lots of showings recently and that sales are growing faster than inventory. That is keeping the bidding process competitive and maintaining price levels, something he doesn’t see changing.

“We need to not just see a seasonal increase (in listings), but we need to see a big increase in the number of people coming on the market to sell — and we don’t know if that’s going to happen, to be honest with you,” Pasalis said. “We’ll probably see some increase but I’m not sure if we’re going to see the level we need to bring a bit more balance to the market. And by balance, I mean, fewer bidding wars, homes sitting on the market a little bit longer.”

Pritesh Parekh, a Toronto realtor, said that while the lack of listings may be supporting prices, it is limiting the options for buyers.

“If a realtor is representing a buyer in this market, they’re definitely feeling the pressure of even finding homes that are suitable,” Parekh said. “And when they finally do find a property — and I’m talking more so houses than condos in this specific example — there are so many other buyers that are looking at that same home.”

For realtors, Parekh said the market has shifted dramatically since 2021, when one didn’t have to be working full time to make ends meet.

“It was a market where properties were selling quickly and selling for high prices,” he said. “Part-timers doing lower volume sales or staying afloat based on the reality that there was a lot of business to go around, were selling properties relatively easily.”

There is less business to go around for real estate agents these days.
There is less business to go around for real estate agents these days. Photo by Ty Wright/Bloomberg

Then, the market was buzzing from the Bank of Canada’s emergency interest rate cuts, sparked by the COVID-19 pandemic. The overnight rate sat at 0.25 per cent for all of 2021. A previously hot market seemingly got hotter that year.

“Properties were selling without being staged, without having repairs — even properties that had negative attributes were still selling at prices people couldn’t believe,” Parekh said.

As the Bank of Canada tightened monetary policy, the market thinned out and the “anything goes” mentality disappeared with it.

Parekh thinks this spring will show that buyers and sellers are tired of playing the waiting game.

“There were so many people who were looking to buy last year,” Parekh said. “And once prices started going down, they held off to see what happens next. There are still people in the market who have been waiting since last year, and at this point there’s going to be a segment of them who are tired of waiting and say, ‘You know what, I’m ready to pull the trigger.’”

A sold sign outside a home in Vancouver.
A sold sign outside a home in Vancouver. Photo by Richard Lam/PNG

Adil Dinani, a realtor with Royal LePage West in Vancouver, has been selling real estate for 17 years and has seen three major market corrections. He said he is optimistic about the spring market and believes that “the worst is behind us.”

According to Dinani, entry-level price points of the Vancouver market are very active right now.

But he thinks a reckoning may be ahead for the industry, with less-established agents being winnowed out over the next few years.

“I think real estate practitioners need to work to provide value, to display market knowledge and really understand what’s happening out there (in real estate) because it’s a confusing time,” Dinani said. “If you’re a first-time buyer and rates are five and a half, six per cent, and prices have come down but not that much — you want to know where the opportunities in the market are.”

In spite of the uncertainty, Tamene is optimistic the market will bounce back.

“Things have been slower these past few months which can be discouraging,” she said. “I’m not a gambler but if I were placing a bet on Toronto and its real estate market, I’m going all in because that’s how confident I am that things will turn around.”

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European real estate stocks hammered by banking turmoil

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