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Real Estate's Foreign Affair --- Declining Dollar Enables Europeans to Buy U.S. Homes, Pushing Up Prices for Locals

PAM GILHOOLY and her sister Valerie King, both of Edinburgh, Scotland, spent many holidays in Florida and often dreamed of buying a place there. Their wish came true last year when the weakening dollar enabled them to pool their savings to buy a four-bedroom, 3 1/2-bath home in Orlando for $214,000.

"We thought it was a fantastic time to buy," Ms. Gilhooly, a lab technician, says. A similar property back home would have cost about $950,000, she says. "The currency definitely helped."

The weakness of the dollar has suddenly made the cachet of owning a second home in the U.S. possible for many Europeans -- and they are snapping up houses and condos across Florida, as well as New York and other locations like Chicago and Colorado's ski resorts.

The euro has risen about 10% against the dollar in the last year and more than 50% in the last three years. Meanwhile, the British pound is up about 35% from three years ago and about 5% in the last year. Though housing prices in the U.S. have hit record highs -- the median price of a single-family home in West Palm Beach-Boca Raton, Fla., rose 36% last year to $361,800, for example -- foreign buyers are undeterred because of the strength of their own currencies and housing prices that are often even higher in their own countries.

No one keeps statistics on foreign buying of U.S. residential real estate, but brokers and housing experts say foreigners have stepped up their purchases. Liz Agnello, director of broker services at the Ginn Co., of Orlando, says a broker in England recently referred 14 people to her, all of whom were interested in the company's new condos at the Reunion Resort & Club of Orlando, which range from $500,000 to $800,000. "You don't normally get 14 foreigners at one time," she says. "It's not an uptick. It's a surge."

Foreigners have always bought U.S. real estate, particularly when the dollar is weak. But the current buying spree has more steam, thanks to the impact of a single European currency and cheaper airfares, experts say.

The creation of the euro in 1999 is driving European bargain hunters to the U.S. because they can no longer take advantage of weak currencies of countries within the continent to get deals on homes, says Jeremy Siegel, professor of finance at the Wharton School at the University of Pennsylvania.

Another key difference is cheaper airfares. Deregulation of the airline industry fueled competition and led to cheaper flights, making the U.S. more accessible for overseas travelers, says Stuart Gabriel, a professor of finance and economics at the University of Southern California's Marshall School of Business.

Despite the bargain prices, some foreign buyers may not spend much time at these second homes. Ms. Gilhooly and Ms. King plan to vacation at their Florida home three times a year for about two weeks each visit. They'll rent it the rest of the time. Airfares may be cheaper than in previous years, but not throughout the year: fares can cost over $1,000 roundtrip at peak times.

Some foreign buyers aren't content with snagging just one home. Jan Martin, a broker and director at SunSense International Property Ltd. in Kettering, in the United Kingdom, says in the past few months, a number of her customers have purchased multiple properties in the U.S.

One of them, Mike Pethick, a 43-year-old former owner of a leisure-wear clothing line whose primary residence is in Swindon, England, bought four condos in Miami as investments early last year. As the U.S. dollar got weaker, Mr. Pethick couldn't resist buying another condo in September. "It made a hell of a difference. It was a lot cheaper to buy then. In fact, if I had some spare cash, I would definitely buy now," says Mr. Pethick, who plans to sell the condos.

Alvina Labsvirs Smith and her husband, who live in Warwickshire, England, were planning to buy one home to take advantage of the weak dollar but ended up buying two in the Orlando area last year. "You get a lot more for your money than you do in England," says Mrs. Smith, a teacher. "Property prices are very high there." The currency exchange made the $219,000 and $367,000 homes a bargain compared to the U.K., she says. They plan to vacation several times a year in one house and rent it the rest of the time; they will rent the other home.

The activity is by no means limited to Florida. Brokers say Manhattan real estate is increasingly being bought by foreigners. Jonathan J. Miller, president of Miller Samuel Inc., a New York-based real-estate appraisal firm, estimates foreigners made up about one-third of the buyers of apartments in Manhattan in 2004, up from one-fourth in 2003.

Pat O'Brien is one of them. After years of buying vacation homes and condos in Europe and his home country of Ireland, Mr. O'Brien recently bought a two-bedroom apartment in a luxury 78-story condominium building not far from Manhattan's Central Park, his first property purchase in the U.S.

"The [money] I put in was worth up to 40% more than it would have been before," says the 50-year-old tax accountant, who lives in Dublin and plans to use the apartment instead of staying in a hotel when he and his family are in town.

"He's shrewd when it comes to arbitrage," says Mr. O'Brien's broker Max Dobens, who is with Prudential Douglas Elliman. "He timed it perfectly." Mr. O'Brien declined to say how much he paid, but Mr. Dobens says two-bedroom apartments in the building are now on the market for between $2 million and $2.5 million.

Foreign demand is helping to keep home prices lofty, exacerbating concerns about a housing bubble in the U.S. while, at the same time, pushing homes in some areas out of reach of local residents. Mitchell Moss, a professor of urban policy and planning at New York University, says increased demand for residential real estate in Manhattan from foreigners, for instance, has had the indirect effect of increasing demand -- and pushing up prices -- for housing in boroughs such as Brooklyn and Queens.

In some cases, foreigners are dominating sales at entire developments. The majority of pre-sales for the first two phases of a six-phase luxury condominium hotel in Lake Buena Vista, Fla., have been to buyers from the U.K., Ireland and Europe. Sales began early last year and are 71% international and 29% domestic, says Larry Cohen, senior vice president of Lake Buena Vista Resort LLC, the Orlando-based developer of that complex as well as numerous other condominium projects in Florida.

"This is unusual for us. In the past, it's been more like 80% domestic and 20% international," he says. Units in the new condo hotel, set to open in November, range from $349,000 for a two-bedroom to $699,000 for penthouses. Some foreigners bought after seeing pictures of model units on the Internet.

 

 

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