International investors in commercial real estate say that a repeal of the Foreign Investment in Real Property Tax Act (FIRPTA) and ‘improved property fundamentals’ would have the strongest impact on their decisions to grow their investments in U.S. real estate, according to the results of the 20th annual survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE).
However, while 60% of survey respondents say they plan to increase their investment in U.S. real estate in 2012, that number is down from 72% last year. The U.S. saw its first-place score among AFIRE members shrink from 64.7% in last year's survey to 42.2% this year, with Brazil closing the gap in second place with 18.6% of the votes. Survey respondents hold more than $874 billion of real estate globally, including $338 billion in the U.S.
Brazil and its largest city, Sao Paulo, emerged among the global leaders in this year's survey. Brazil jumps 14.2 percentage points, from fourth place in last year's survey, to be named the second best country for capital appreciation, pushing China into third position. Sao Paulo rose from 26th place to be named investors' fourth global city for real estate investment dollars in 2012.
‘Foreign real estate investors have made clear there is considerable pent-up demand for U.S. real estate awaiting better real estate fundamentals and relief from FIRPTA regulations,’ says James A. Fetgatter, CEO of AFIRE. ‘If the investing environment improves, the U.S. is poised to return to its 'safe haven' status.’
FIRPTA authorizes the U.S. to tax foreign persons on dispositions of U.S. real property interests. According to the Internal Revenue Service, a foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders.
AFIRE survey respondents also identified 25 emerging countries, up from 18 last year, being considered for investment in 2012. Appearing for the first time in the ranking are Colombia, Hungary and Qatar.
The survey was conducted in the fourth quarter of 2011 by the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business.