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“Buy land, they are not making it anymore”

It is hard disagree with the above quote. Ownership of strategically located land has always been, and always will be, a sound investment. It has stood the test of time and will continue to preserve and generate wealth for generations to come. So why don’t more investors take advantage of the current opportunities in the USA land sector? It is certainly a great time to invest there and there are some sound opportunities available.

Most investors in places like Hong Kong, Singapore and Malaysia focus on the UK market and have little knowledge of the USA. London apartments have long been an investment favourite for investors in these countries. The London market has performed extremely well over many years and is a superb place to invest. However, many investors cannot access the market there as prices have soared in recent years. Land in the USA is a much more affordable investment with investment levels starting from US$10,000. Some people will be concerned that this will only buy something in the middle of a swamp or so far from civilisation that-one will want to live there in our life times. However, this is not the case, it is merely a reflection of the current state of the USA market.

Residential land in established communities in Florida can now be bought from under US$15,000. Prior to the GFC in 2008, many of the plots were selling at close to US$100,000. There has certainly been a lot of pain in this market for investors over the last five years. The fact remains though, that Florida is one of the growth states in the USA and the population is set to steadily increase over the medium to long term. Builders are gradually coming back into the market and housing starts are showing signs of improvement. Permits for future U.S. home construction rose to their highest level in 5 years in October, suggesting the housing market recovery remained intact. Single-family homes are by far the largest segment of the market. The Commerce Department advised that building permits jumped 6.2 percent to a seasonally adjusted annual rate of 1.03 million units. That was the highest rate since June 2008.

The demand for land is not going to surge over night and prices will not double in 2014. Nevertheless, the signs are there that the worst is over and Americans have started building homes again. They will need land with approvals in place for this. When you can buy a building plot for under US$15,000, the downside is negligible. It really is worth a punt on the recovery of the USA single family home market – the returns may be excellent over the next five years.

As an alternative to buying land already zoned residential, investors can buy pre-developed land through Walton. Some investors will worry that the company will fail to secure planning approval, but it has never failed to do so and with 56 exited projects it has a sound track-record. Rather than simply wait for the land to increase in value, Walton adds value to it by securing all the necessary approvals to allow a developer/builder to start construction. Investors do not have the flexibility of being able to sell when they want to, as they do with individual ownership of a building plot, but for investors who want a ‘hands off’ profitable 4-6 year investment, it is ideal.

USA

Growth returns to the USA market

In February of last year we released two Property Bulletins and it is worth reviewing them in the light of what is happening in the USA market.

Property Bulletin – 4/2012
US market regains its lustre

Florida: The state where the US housing slump started now shows the best potential, analysts say
Jobs are coming back and home prices are stabilising. America looks like a land of opportunity

Property Bulletin – 5/2012
Warren Buffet : I’d buy up a couple hundred thousand single family homes if I could

The point we stressed was that when people like Warren Buffet are saying now is the time to invest it is time to sit up and take notice. All markets recover in time and some recover quicker than others. The USA is a prime example of this. Not everyone agreed that it was time to enter the market though, and one person even questioned our sanity (humorously, we think).

Well, Mr Buffet was right and last year would have been a great time to enter the USA property market. It has certainly started recovering and prices have risen by 10% over the past year. The graph below from Case – Shiller shows the performance over the past 25 years. All 20 cities have just shown increases on an annual basis for at least three consecutive months. Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Seattle and Tampa all posted double-digit annual returns.

The good news keeps coming – a recent report from CoreLogic showed there were 9.7 million properties underwater (whose owners owed more on the mortgage than the homes were worth) during the last quarter. This was down from 10.5 million in the previous three months. That amounts to 19.8 percent of all properties with a mortgage, down from 21.7 percent. In the past year, 1.7 million borrowers have regained positive equity. “We are still far below peak home price levels,” CoreLogic Chief Executive Officer Anand Nallathambi said in a statement, “but tight supplies in many areas coupled with continued demand for single family homes should help us close the gap.”

As you would expect in a market the size of the USA, the recovery is quite fragmented. Nevada had the highest percentage of properties in negative equity at 45.4 percent. Rounding out the top five were Florida, Michigan, Arizona and Georgia. These five states combined accounted for 32.8 percent of negative equity in the United States. These are the markets astute investors should target.

So why didn’t more overseas investors enter the USA market last year? Lack of familiarity with the market there is the reason most often cited. Investors in Hong Kong, Singapore and Malaysia are much more familiar with the London market and many are reluctant to go outside their comfort zone. The important thing to remember is that if you have the right adviser, investing in the USA can be a trouble-free and profitable exercise. A lack of knowledge and familiarity should not deter you. The right adviser will handle all aspects of the purchase process, ongoing letting and management and eventual resale of the property. The USA is a sophisticated market and the level of professionalism and service in the property sector is second to none. In addition to this, we have had over 20 years experience in serving the needs of international property investors.

Whether it is a freehold house, condo or development land, the USA is the place to invest at the moment. When you can buy land through a company with a hugely successful track record from as low as US$10,000 or a Tampa freehold house in a marina development close to shops etc for under US$250,000 there is no downside.

Poinciana 2

Poinciana, Florida – a great place to live and invest in

As our clients will know, we are firm believers in the freehold house market in Orlando, Florida. Quality 3/4 bedroom homes with tenants in place and net rental yields of 4% plus p.a. can now be bought from under US$100,000. Poinciana is a quality residential area that offers a wonderful lifestyle for its residents. You can find out all about it by visiting;

It is worth taking a few minutes of your time to look at what Poinciana has to offer. You will quickly see why we are firm advocates of the area and the homes on offer.

USA

US renters are losing their leverage

Florida Realtors recently released the following which makes interesting reading;

During the boom years of homebuying, property manager Charlie Biter used to offer new apartment tenants one or two months’ free rent as a lease enticement. Now, as rental demand continues to surge, no such offers are necessary. “Back then, everybody was being creative to bring renters in,” said Biter, who oversees 2,000 apartment units in the Nashville area for Continental Property Management. “But now I’m not aware of any units offering concessions.”

Across the country, as more people compete for apartments in the wake of the housing collapse, the market has swung in favor of landlords. For tenants, that means saying goodbye to move-in incentives and watching rents edge higher. About a quarter of all apartments nationwide offered some type of concession in last year’s fourth quarter. By comparison, 53 percent of apartments offered concessions in the first quarter of 2010, according to data tracker MPF Research’s latest report. “The industry moves in cycles, and right now not a lot of apartments are available,” said Jay Parsons, an analyst at MPF Research. Until apartment construction catches up to demand, landlords will maintain their control of the market, he said.

The vacancy rate in Pittsburgh, at 2.2 percent, is among the lowest in the country, according to MPF’s fourth-quarter data from 2011. University of Pittsburgh master’s student Harrison Murphy knows the difficulty first-hand. Four years ago, he found an apartment within an hour of searching, he said. Now, not only are rentals harder to come by, but many landlords require stricter background checks. “I have been unable to find a single place that doesn’t require a recommendation from your previous landlord, with some even asking for recommendations from teachers,” Murphy, 24, said.

In New York, too, as rental demand swells in some of the most desirable neighborhoods, rates are reaching new highs. In 2011, average rents across all apartment categories rose 8.4 percent compared with the year-ago levels, according to the Citi Habitats annual report.

In Chelsea and the East Village, average monthly rent in January for a one-bedroom apartment hit $3,218 and $2,616 respectively. Both neighborhoods have vacancy rates below 1.5 percent. Furthermore, landlord concessions in New York plunged 68 percent from 2010, according to the report. “With high demand in the marketplace, landlords were not likely to negotiate with potential renters, and needed to do little to attract clientele to their available apartments,” said Citi Habitats President Gary Malin.

In Portland, Ore., one of the country’s tightest markets, the year-end vacancy rate was 3.1 percent, according to the Barry Apartment Report, a local data tracker. “Nobody’s giving concessions. That’s history,” said Joe Weston of Weston Investment, which owns 3,000 apartments in the Portland area.

In April, his firm plans to raise rental rates about 5 percent. “People living in suburbia are moving to the city center,” he said. “And some of those people were foreclosed on and are now renting.”

Warren Buffett

Warren Buffett : I’d buy up a couple hundred thousand single family homes if I could

When probably the greatest investor of our time makes a statement like the above then it is time to site up and take notice. Warren Buffett says along with equities, single-family homes are a very attractive investment right now. Appearing live on CNBC’s Squawk Box (http://www.cnbc.com/id/46538421 – 5.10 minutes in) Buffett says he’d buy up “a couple hundred thousand” single family homes if it were practical to do so. If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks.

All property markets recover and the USA will be no different. Markets such as Florida offer superb opportunities to buy single family homes at below replacement cost and with strong net rental yields of 5% plus. If Warren Buffet thinks now is the time to invest in this sector, then it is definitely time to do so.