Foreign Home Buyers Could Solve Our Housing Crisis. But What's the Cost?

The answer to Las Vegas' housing and foreclosure troubles might not come from Nevada at all, some housing experts say. Many developers are looking to encourage overseas investors to buy up our oversupply of housing stock, thus increasing home values and spurring renters into move into otherwise-foreclosed and vacant homes.

But this is a road we’ve been down before, and it’s part of why we’re in our current real-estate debacle.
Own a home in Nevada? There’s a 60 percent chance you owe more on it than it’s worth, thanks, in large part, to overinvestment and overbuilding.

For nearly two decades, investors both within and outside of Nevada bought homes throughout the Las Vegas Valley, banking that the booming market would keep going up and up and that they would make big money when they chose to sell.

Then—say it with me—the housing bubble burst.

Although it might sound great to have more investment occurring in our economically hurting state, absentee owners, be they from Hong Kong or Los Angeles, are simply not as personally invested as locals are, says Karen Black, President of May 8 Consulting and an urban studies professor at University of Pennsylvania.

"We know looking at studies that local owners tend to upkeep their properties better," she says.

Support comes from

Neighborhoods with high levels of absentee owners have more crime and blight, too, because owners who aren’t there simply won’t have the same personal connection to the community.

Estimates are that 4 percent of all real estate in the United States is owned by people living abroad. And in Nevada, 45.2 percent of all homes sold in September 2011 were to people who don’t live here. In September 2008, just about 25 percent of all homes sold were absentee.

Brian Krueger, senior vice president of strategic services, Coldwell Banker Premier Realty, argues that although absentee owners may not be perfect, at least they’re renting to tenants to turn a profit, instead of leaving vacant homes throughout Las Vegas’ neighborhood.

"Would you rather have neighborhoods that are empty that would have more blight? Or would you rather have a good tenant...who might eventually want to own that home today?" he asks.

Jack Wang, a realtor at Hot Point Realty who deals with many foreign clients, says that scooping up and investing in vacant homes is what Nevada needs to begin recovery.

"The key now is to absorb the inventory,” he says. “It's simple supply and demand."

There are some points of compromise between the camps, however. If an investor doesn’t live within the U.S. or within Nevada, for example, it makes sense to have a local agent who can be responsible for the property, Black says. That way, if something happens—broken zoning laws, smells emanating from the home, etc.—there’s someone to be held accountable.

Black points to government regulation—something she says was clearly lacking during the last boom of Las Vegas real estate  investment—as a possible solution to this issue.

So, what do you think? Will absentee investment in homes clean up our foreclosure problem? Or will it simply mean that absentee landlords will make the shredded sense of community in Las Vegas even worse? Is this the housing bubble all over again?

Listen to the full segment above, and sound off below in our comments section.

Jude Joffe-Block, Sr Field Correspondent, Fronteras: The Changing America Desk
Brian Krueger, Senior VP, Strategic Services, Coldwell Banker Premier Realty
Jack Wang, Realtor, Hot Point Realty
Karen Black, Principal, May 8 Consulting
John McClain, Deputy Dir, Ctr for Regional Analysis, School of Public Policy, George Mason University
Beyond Sprawl: Can Foreign Cash Save The Housing Market?
Local realtors are recruiting international buyers to Las Vegas' hard hit housing market.

— The unending rash of foreclosures and falling home prices in Las Vegas continues to cause despair. But the same housing crisis is causing some investors to see opportunity. Home prices have dropped to 1990s levels, and many homes in the area are selling for below the amount it would cost to build them.

In fact, these Las Vegas homes are getting noticed from buyers all over the world.

Kevin Chu recently toured Las Vegas for the first time to check on his investment firm’s properties.

In the last 18 months, his firm, The Creations Group, which has offices in both Hong Kong and Melbourne, has bought up distressed homes all over the U.S. – including 13 in Las Vegas – at fire sale prices.

“I’m very excited,” said Chu in heavily accented English.

He was with his local property manager, Tracy Bennett, as she drove him to visit one of the firm’s properties that had just been renovated. While Chu has dealt with the firm’s Las Vegas properties on the phone, he had never seen any of them in person, until now.

The newly renovated house was in an on older, working class part of North Las Vegas.

“The houses are going to be a bit smaller here,” commented Bennett as they drove up. “And we have arrived, now this is your house right here.”

Bennett pointed to a disaster of a house that was clearly vacant. Blue graffiti covered the garage. Trash was piled in the yard.

Before anyone could say anything, she laughed.

“I’m kidding,” Bennett said, giggling, and Chu and his associate also laughed.

But the blighted house is a reminder of the bleak housing reality in Las Vegas: Foreclosure rates that are more than three times the national average have led to thousands of bank-owned properties that sit empty.

Thankfully, for Chu, his firm’s house – just down the block – was in much better shape.

It was a modest, one-story home with a carport. There was fresh paint inside, and a fairly well maintained pool in back. The house seemed ready for a tenant.

“It looks very good,” Chu said. “Much better than I expected.”

And the U.S. housing market as a whole looks very good, better than expected to Chu’s boss, Danny Lim.

“I think there is nowhere else in the world where you can actually get the bargains that we can get in the U.S. right now,” Lim said.

We reached him by phone in Miami, where he was looking for more properties.

“In some places. the types of prices that we are getting, I think it’s, you know, once in a generation,” Lim said. “Perhaps once in a lifetime kind of opportunity.”

The opportunity is there partly because of a strong rental market.

In Las Vegas, a lot of people need to rent because they have lost their homes, or because credit is too tight for them to buy. Rents are sufficiently high and home prices are sufficiently low that some investors figure they can find houses that will pay for themselves in just 10 years.

Assuming demand for rentals holds, that kind of return is hard to beat.

Lim isn’t the only investor to notice. Absentee buyers accounted for 45 percent of Las Vegas homebuyers in September, according to the most recent analysis by the real estate research firm, DataQuick. In contrast, three years ago, absentee buyers bought just a quarter of the homes for sale.

Now some locals are hoping to convince more international buyers that there are deals to be had in Las Vegas.

“So what we are doing actually is advertising in the Asian newspapers,” said Andy Chu, a local realtor. “We let them know: Hey, look, U.S. is a good place to invest.”

A quarter of Chu’s agency’s clients are from Asia already. But he wants more. They are good customers because they often will buy several properties and pay in cash. Which means he doesn’t have to spend months waiting for financing to be approved.

“From a business perspective, you can get paid in four days or get paid in six months,” Chu said. “It’s sort of lucrative if you think about it.”

The 2012 strategy for the Las Vegas branch of the Asian Real Estate Association of America is to help local realtors get international business through new web tools and networking opportunities.

“If you are a homegrown product, how do you network with someone in Canada? How do you work with someone in China, Vietnam or Taiwan? It's very hard,” said Joseph Lai, the president of the local chapter of the Asian Real Estate Association. “That's the reason why our association is trying to bridge that gap.”

Last year, buyers from abroad were most active in Sunbelt states like, Florida, Texas, Arizona and California, according to the National Association of Realtors. In each of the last three years, purchases by foreign buyers have remained steady at an estimated $40 billion worth of American homes.

Lai said more international activity in Las Vegas could help revive a local housing market that is plagued by too many vacant houses.

“International investors, we see them as absorbing a lot of the inventory,” Lai said. “They are going to come in, make them income producing properties. And then they are going to fix them up, get them into livable shape, get them rented out.”

And with a backlog of tens of thousands of foreclosures expected to roll onto the Las Vegas market in the coming months, buyers from anywhere in the world will be in demand to soak up a lot more inventory.

~Jude Joffe-Block

Tuesday, December 13, 2011

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