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Big bargains draw buyers

What you getDistressed properties across the US have become popular among Chinese investors, writes Peta Tomlinson

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In the US, residential properties that are in foreclosure or bank-owned are preferred by overseas buyers over new homes. Photo: Bloomberg

When Warren Buffett offers investment advice, hopefuls hang on every word. Stocks are usually the asset of choice for the American billionaire, dubbed the "world's greatest moneymaker" in a BBC documentary. However, in 2012, he tipped property - distressed property in particular.

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"If I had a way of buying a couple of hundred thousand single-family homes, and had a way of managing them, I would load up on them," Buffett told a television interviewer. He described US property as "a very attractive asset class now" and, given the low interest rates, "a terrific deal". Property bought at distressed prices on a 30-year mortgage is "a leveraged way of owning a very cheap asset, and probably as attractive an investment as you can make," Buffett added.

Others apparently concurred: foreclosed properties made up 21 per cent of all US sales in 2012, and short sales - where the home is sold for less than the value of the mortgage - accounted for 22 per cent. According to data from RealtyTrac, this meant that 43 per cent of all sales in 2012 were of distressed properties.

By last year, the beleaguered US property market had finally turned the corner, but, if anyone thought that was the end of the bargains, the latest report from RealtyTrac suggests otherwise.

The median price of a distressed residential property - in foreclosed or bank-owned - in September 2012 was US$112,000, 41 per cent below the median price of US$189,000 for a non-distressed property. Distressed sales accounted for 25 per cent of all sales in September, up from 18 per cent a year ago, the report found. "Distressed sales remain persistently high, particularly short sales," says Daren Blomquist, vice-president at RealtyTrac. "Markets with the biggest increases in short sales tend to be those where either foreclosure starts or scheduled foreclosure auctions have rebounded in the last 18 months - translating into more motivated short sellers - or those with a still-high percentage of underwater homeowners with negative equity."

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followed with a report that Chinese bargain-hunters were on the prowl, pursuing US properties that are in default on loans, suffering high vacancy rates or facing other turnaround challenges. This suggests that Chinese investors are either less risk-averse than many seasoned real estate investors, or are prepared to hold onto property for years until values rebound.

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