News from the NAR: The U.S. Ripple Effect on Foreign Investment

This morning the National Association of Realtors released the news report of a rippling effect on foreign investment as a direct result from the mortgage crisis and resulting housing crunch. Here is what they had to say this morning:

As the U.S. begins moving out from under the housing crunch, other world markets are just beginning to feel the “overseas aftershock” of the global financial system, according to the Sept. 4 Business Week online magazine.

What do bad home loans in Alpharetta, Ga. have to do with office buildings in London or Tokyo? “Plenty,” says Business Week. Global lenders, wary of further credit problems are denying credit to many builders and/or instituting tougher terms on commercial property loans. This, in turn, impacts employment markets, which impact rents and causes developers to rethink plans. The whole global commercial property market has slowed with the value of commercial real estate transactions worldwide at only $306 billion for the first six months of 2008–about half the amount for the same period in 2007, according to Real Capital Analytics.
But it’s not just the U.S. subprime mortgage situation at play.
An overall softer economy and weak consumer confidence has hurt smaller developers–particularly those is markets that heated up quickly, including those servicing U.S. outsourcing (think IT); a U.S. sector that is slowing along the overall economy. In spite of all this, Business Week notes that opportunities exist, especially for those with cash.

Sovereign wealth funds (SWF), which are state-owned entities that manage savings for investment purposes, are key players in commercial real estate and are flush with cash. According to an article in the April Real Estate Forum, SWF have grown from about $500 billion to more than $3 trillion since the 1990s, with projections of tripling that amount by 2012. Go to pg. 10 to read the full article:
***End of News Report***