No more than a week removed from the results of the Brexit vote, uncertainty has taken hold of the global market. Investors around the world are, more or less, at a loss for words, and some are even uncertain of what their next move will be. I, however, am convinced the Brexit could benefit U.S. real estate investors that are proactive. Listen to what the market is saying, and you may be given insight into your next move as a real estate investor.
Remember, there are two sides to every coin. Despite the current sentiment regarding U.K. real estate, or lack thereof, now may be a great time to consider foreign investment opportunities. Primary cities in the U.K., like London for example, have been considered expensive by every stretch of the imagination. However, the recent uncertainty to take Britain by storm could serve to lower the country’s already high home values. Pundits and industry professionals have begun to speculate that now may be one of the best times to scoop up property across the pond. If for nothing else, the price drop or speculative stagnation isn’t expected to last long. Those who get in now could realize attractive spreads by the end of summer, if not sooner.
Again, this is pure speculation, but uncertainty typically results inactivity; people are less likely to invest heavily in a property if they aren’t sure of the direction of the market. In the event the British housing market does in fact become stagnant, prices are more than likely going to drop, which could be all that is needed for some investors, both foreign and domestic, to get off the fence and commit to a London flat.
While the news is less than exciting for those that already own property in the U.K., given the likely decrease in equity, buyers will take the opportunity to stretch every dollar. If for nothing else, it will probably be easier to buy more with less in today’s market. Timing the market can be a fool’s errand, especially in times of uncertainty, but those who do so successfully are more than likely going to be rewarded accordingly.
It is important to note, however, that the Brexit will more than likely have global ramifications. Here in the United States, investors are intrigued by what Britain’s departure from the European Union could mean for commercial real estate, and specifically real estate investment trusts (REITs).
Again, this is purely speculative, but if the housing market in the U.K. were to experience a setback, there is no reason to believe British investors wouldn’t reallocate their funds to a more promising investment vehicle. As it turns out, the most likely scenario is one that witnesses British investors invest in U.S. real estate. In fact, it is no longer really a question of whether or not they will invest in the stateside housing market, but rather which section will become the beneficiary of their reallocation of funds.
Let’s take a look at a few of the reasons we should expect investors in the U.K. to look to U.S. real estate as a safe haven for their capital in these times of uncertainty:
The Easement Of Tax Burdens
With the U.S. not far removed form one of the worst recessions in American history, the U.S. government saw fit to attract foreign capital stateside. In an attempt to infuse the housing market with much needed capital, the powers that be made it easier than ever for foreign investors to stake their claim to real estate investment trusts (REITs). The move made it possible for foreign investors to own up to 10 percent of an REIT before they would incur federal taxes – up from five percent. If for nothing else, investors’ dollars will go further here in the United States than they have in quite some time.
The Recent Success Of REITs
Real estate trusts, not unlike the entire U.S. housing market, have been on a bit of a hot streak. With the first half of 2016 officially in the books, REITs have outpaced the broader equity markets for the better part of six months. If that wasn’t enough, the dividends and yields offered by a diversified REIT portfolio are currently boasting should improve with the announcement of a new real estate sector that is due to be introduced on the S&P 500 when he calendar turns to September. The creation of the new sector should increase the exposure of REITs and, perhaps even more importantly, infuse them with a significant amount of capital. At the very least, mutual fund managers looking to diversify in the new sector should provide a boost to the companies making the move. So while REITs are already in a great position to prosper, the new sector should give them legs for the foreseeable future. You can bet both domestic and international investors have already taken note of the recent success of REITs; now it is time for you to do the same.
Dividends & Yields
If history has taught us anything, it is that foreign investors have been attracted to commercial real estate and their real estate trusts for quite some time. How could anyone looking for a good investment vehicle ignore what they have been doing dating back to the end of last year? That said, foreign investors have already found U.S. commercial real estate attractive, but the potential decline of British real estate could make our domestic housing market all the more attractive. There is no reason British investors shouldn’t at least consider reallocating their capital into U.S. commercial real estate and respective REITs; the rental yields alone are a sight to behold.
No matter how you look at it, U.S. real estate just got a lot more interesting. The wake of the recent Brexit has essentially boosted the prospects of our domestic hosing market. That said, I am convinced commercial real estate will benefit from a perfect storm of sorts; one that will see certain sectors within he housing market receive a lot of capital. That means investors are confronted with one of two choices: invest in foreign real estate in the U.K., or consider the opportunities that are likely to arise in the commercial real estate sector. For those that are less inclined to make a hurried decision, I encourage you to at least consider REITs, as they look to be in a great position to prosper.