Chinese investors have long looked towards U.S. real estate as a core investment as evidenced by the inflow of Chinese capital into the U.S. real estate market in recent years. The United States remains the principal place for Chinese outbound capital with the United States taking approximately USD10 billion of total Chinese inbound investment, of which approximately USD4.37 billion is invested in commercial properties.
“Chinese investment in U.S. real estate is a long-term phenomenon. That said, over time, there will be periods of high volume investment and periods of low volume investment, which will be driven by economic conditions, availability of suitable investments and geopolitical considerations.”- Phil Marra, National Real Estate Funds Leader, KPMG LLP
China Inbound Investing in U.S. Real Estate—2016 Semi-Annual Update provides an update on the U.S. real estate market and in-depth looks at:
Provides a market outlook for each asset type—commercial (office, retail, industrial), residential (multifamily), hospitality (hotel)—for the New York, Los Angeles, San Francisco, Washington, DC, Chicago, and Dallas markets for Q4 2015 to Q1 2016 activities.
How to invest in the U.S. real estate market explores buy or build, mergers & acquisitions, Joint ventures and strategic alliances among other considerations.
The U.S. market offers significant opportunities for foreign investors.
The continued strong demand from more than 310 million people for goods and services has resulted in a trade balance in the early 21st century that currently favors foreign exporters. But the business of exporting goods and services to the United States can be complicated by a host of duty and tariff-related challenges that often make building or buying a business in the United States a better long-term decision. The United States offers numerous financial incentives to build a business, and buying a business may be a cheaper alternative. But the decision whether to buy or build a business in the United States is also governed by a host of factors —geographic, demographic, financial and industrial— that need to be studied by foreign investors before making a commitment.
Under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), any foreign investor (other than a qualified foreign pension fund or a foreign entity wholly-owned by a qualified foreign pension fund) investing in a U.S. real property interest (USRPI) is deemed to conduct a U.S. trade or business and the gain or loss would be deemed to be effectively connected with a U.S. trade or business and therefore subject to taxation on a net basis.
Valuation considerations by asset type
The United States continues to offer significant opportunities for foreign real estate investors, especially compared to other markets worldwide, highlighted by positive albeit not robust, economic growth and a tax regime that welcomes foreign investment. This favorable marketplace, combined with Chinese investors’ interests in diversifying their investment portfolio globally, provides the ideal opportunity for all players, and the inflow of Chinese capital into the United States is expected to continue for the foreseeable future. But investing in U.S. real estate markets presents a variety of challenges—what markets and assets to pursue, what tax structures to create, how to value assets appropriately—that investors need to carefully consider to increase the odds that their investment efforts are productive.
For more details download China Inbound Investing in U.S. Real Estate—2016 Semi-Annual Update