Russian & Chinese Investment into U.S. Real Estate Alexander Aginsky

Download the PDF version of the report Real Estate Market in Russia, China, and America: Trends and Opportunities

Russian fertilizer oligarch Mr. Rybolovlev is the buyer of the most expensive single-family home sold in America. The property, at 515 N. County Road on Palm Beach, sold for $95 million.

Summary of contents
- Overview of the current state of the U.S. real estate market
- BRIC economies and their growing importance in the global economy
- Russia's economic outlook and business prospects
- China's economic outlook and business prospects
- Opportunities for U.S. real estate companies

Overview of the current state of U.S. real estate market

The U.S. real estate market is currently going through one of the worst corrections in history as evidenced by a steep, declining trend of new home sales and rapidly growing real estate foreclosures.

The sales of new single-family homes in January 2009 were at a seasonally adjusted annual rate of 309,000, according to the estimates of the U.S. Census Bureau and the Department of Housing and Urban Development. This value is 10.2% below the revised December 2008 rate of 344,000 and 48.2% below the January 2008 estimate of 597,000.[1] Ian Shepherson, chief U.S. economist at High Frequency Economics said, "We think that the sales are now very close to their floor. The absolute level of inventory continues to fall, but because sales are falling even faster, the monthly supply is still rising. This will keep prices falling for the rest of this year at least." [2] The widely-quoted S&P/Case-Shiller Home Price Index corroborates the ongoing drop in home values across the U.S., reporting that in November 2008, 11 of 20 metro areas around the nation showed the highest decline in annual rates ever on record.[3] This huge decline in real estate prices is due to immense oversupply and dwindling demand caused by factors such as the credit crunch (difficult mortgage financing), low consumer confidence, high unemployment, and high cost of production. According to the New York Times, it would still take 9.6 months to rid the market of all unsold properties, up from 9.4 months in December 2008.[4]

In reference to the nation's precipitous increase in foreclosures, Peter Steier, VP of Inland Mortgage Capital in New York said, "We're going to see a whole lot more trouble going forward."[5] This seems to be the case as the rate of foreclosures in the U.S. continues its upward trend. The Center of Responsible Lending projects that foreclosures will reach 2.4 million nationwide in 2009.[6] This epidemic of home losses will have a devastating impact on working families by further depressing the housing market and increasing unemployment, thereby weakening the entire economy.[7] Since start of year 2008, more than 40 U.S. banks under Federal Deposit Insurance Corp.'s (FDIC) watch list have closed.[8] The availability of debt, which is a critical component of the real estate sector, has dried up, significantly reducing sales. In fact, Americans' mortgage debt in the second quarter of 2007 grew at the slowest pace in 9 years and mortgage debt has almost stagnated in 2008.[9] This is mainly due to declining real estate prices and increasing foreclosures that have put borrowing under pressure.[i] Currently, borrowers are resisting selling because of falling prices and banks are not selling off their troubled loans fearing huge write-downs.

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