What’s happening in the US real-estate market amidst geopolitical conflicts?
25 Nov 2024, By Theja Ram - Content Director & Senior Manager Servicing
25 Nov 2024, By Theja Ram - Content Director & Senior Manager Servicing
The escalation of the conflict in the Middle East, the war in Ukraine, have increased geopolitical risk worldwide, owing to supply chain disruptions. Business perceptions of the risks to the global economy have shifted significantly. A recent study by Oxford Economics found that geopolitical tensions related to Taiwan, North Korea, and Russia-NATO standoff, are now believed to pose the greatest risk to the global economy in both the short and medium term. While businesses continue to expect inflation to rise, many are confident that it will eventually drop in the later part of 2025.
Another study found that the ongoing geopolitical tensions do not pose a downside risk to the US economy because of its strength, except through a potential larger-than-anticipated increase in oil prices to more than $100 per barrel. With the real estate sector in the United States standing out. It is estimated to meet or exceed the required return in 2024, with 5-year all-property total returns expected to be 5.8%. The outlook is positive for the US real estate market as foreign investments are expected to increase, with property yields and bond spreads set to widen in an environment of growth.
This investment climate makes the US real estate market ideal for foreign investments, especially for Indian investors. Infact, 7% of all foreign buyers of US real estate are Indian nationals, with collective investment pegged at $3,4 billion.
The United States boasts a robust and diverse economy, supported by a stable political environment and a well-defined legal system. The regulatory complexities are greater in India compared to the United States, making it a safer option. Steady growth is anticipated in the US real estate market with a CAGR of 3.34%, resulting in a market volume of US$155.60 trillion by 2029.
It demonstrates consistent appreciation, especially in major cities and desirable neighborhoods. The country’s diverse geography allows investors to choose from a wide range of markets, depending on their risk appetites, across cities like New York, Los Angeles, and San Francisco, as well as newer attractive markets like Texas, Dallas, Chicago, and Atlanta. These regions make for attractive investment opportunities for the growing middle class in India, looking to generate wealth.
One of the key strengths of the US real estate market is its transparent regulatory framework. With a well-documented legal system, clear property rights, and a stable economic environment even amidst global tensions, it makes for an attractive investment option. Additionally, financing options are available and relatively straightforward. However, challenges do persist. Prices in most metropolitan areas, like New York or Los Angeles can be very high, limiting entry for smaller investors. However, the diversity in market conditions allows smaller investors to put their money in areas like Texas, Atlanta, and more. No investment area is completely risk-free, and the US real estate market also faces risks such as interest rate fluctuations and economic downturns, which could impact property values.
Three currencies are considered safe havens for investment: the U.S. dollar (USD), the Japanese yen (JPY), and the Swiss franc (CHF). Despite the Bank of Japan raising interest rates, and Saudi Arabia refusing to renew the Petrodollar deal, the US Dollar has remained a stable currency, making it the default global safe haven.
Although the Indian rupee has remained less volatile in 2024, fluctuations in currency value are always a risk when it comes to determining an investment destination for real estate. Fluctuations in exchange rates have an impact on ROI for investors. In contrast, investing in the US real estate market exposes investors to a relatively stable currency, reducing the risk associated with currency fluctuations.
Government and Central Bank regulations play a pivotal role in shaping the investment landscape. However, the US boasts the benefits of well-protected property rights, and a legal framework that is conducive to foreign investment. The US government also provides incentives for real estate investors, like the EB-5 visa, enhancing the overall investment climate.
Ultimately, it’s up to investors to decide where they want to put their money, based on their risk tolerance, financial goals, and understanding of market dynamics. While the United States offers stability, market maturity, and transparent legal systems, the hemispherical distance between India and the US often leads to investors shying away from investing in US real estate. The lack of awareness of the region and the complexity of the systems and processes make it a daunting proposition. This is easily remedied if investors perform their due diligence by partnering with organizations that have a good understanding of the US real estate market, and the capacity to navigate complexities and deliver the best ROI. Diversification is the best investment strategy, and combining investments both in India and the US can offer a resilient real estate portfolio, ensuring investors get the best of both worlds.
The thought leadership article was crafted by a senior writer of Star Squared PR. Do reach out to us to understand how you could build credible thought leadership content for your brand.
