Foreign-born home buyers are sometimes hard to miss. Consider 23-year-old Petra Stunt. At a time when most people her age are finishing college or starting a career, the British-Croatian heiress paid $85 million for a modest 57,000-square-foot Los Angeles home with 14 bedrooms and 27 baths.
Not to be outdone, Russian-born Ekaterina Rybolovlev, at the age of 22, recently paid $88 million for a Manhattan condo at 15 Central Park West.
Okay, so these purchases are not representative of all foreign buyers but they do make a point: Foreign capital plays a significant role in the U.S. housing market. No less important, we want as much foreign real estate investment as possible because such purchases increase demand and more demand clears out inventory and pushes home values higher.
To get some sense of perspective consider that mass real estate purchases by Wall Street firms have recently garnered a lot of attention. According to a recent report by Morgan Stanley, six major funds have purchased 78,000 individual homes across the country at a total cost of $17 billion.
In comparison, foreign purchases today are larger. Vastly larger. According to the National Association of Realtors, residential purchases by foreign purchasers amounted to $66.4 billion in 2011 and $82.5 billion in 2012. Foreigners are expected to spend $68.2 billion on U.S. homes in 2013.
One reason for the U.S. purchases is that the alternative — buying in many places around the world — is not easy. There can be restrictions on purchases by foreigners and it may not be possible to directly hold title in the buyer’s name. Bermuda real estate, as one example, is virtually off-limits to foreign buyers.
In contrast, foreigners are welcome to buy U.S. property. Foreigners can get title in their own names and own property on the same basis as U.S. citizens.
Mortgages for Foreigners
The same is true with mortgages. Foreigners can get real estate financing by showing suitable credit and income. They also need paper which allows them to be in the U.S. for an extended period of time. Such paperwork generally includes:
- A Registration Receipt Card 1-151 (a green card);
- An unexpired foreign passport marked “processed for 1-551;”
- An alien registration receipt card without an expiration date;
- An alien registration receipt card without an expiration date but with a copy of INS Form 1-751.
Withholding For Foreigners
When selling a home, there’s a special rule which applies to foreign citizens: The Foreign Investment in Real Property Tax (FIRPTA) applies. Under this law a certain amount of the sale proceeds are withheld to assure the payment of taxes. Once the taxes are paid any excess is refunded to the sellers, wherever they might be.
Even after taxes, U.S. home purchases are still attractive because they provide foreign buyers with a way to move capital into the U.S. The tradition of financial stability is the U.S. is in stark contrast to many nations overseas, places where in some cases the rule-of-law can disappear overnight and the threat of devaluation is constant and real. Little wonder that the children of foreignbillionaires as well as just ordinary folks are buying property in the U.S.