Rich North Americans looking to invest long term in property

Wealthy North Americans are starting to look more closely at investing in residential real estate, an asset class that until recently was the pariah of the investment world.

With property prices in many US cities at record lows, economic fundamentals picking up and interest rates still favourable, more investors are looking to put their cash to work by investing in a second or even a third home.

Advisers warn, however, that a US real estate recovery could be years off but see plenty of deals for people with a long term investment outlook.

‘We're starting to get a lot more inquiries and assisting in transactions,’ said Rocco Papandrea, a senior vice president and wealth management adviser at Merrill Lynch in New York.

Papandrea, who manages around $500 million in assets for 167 clients said he's seeing a lot of interest in properties on the West Coast and in Colorado, with Florida also on buyers' radar.

Prices for single family US homes fell by 3.1% in January over the previous year, the seventh straight month of declines, according to the S&P/Case-Shiller composite index of 20 metropolitan areas.

Over the past four years, US house prices have dropped an average 30% and discounts are even higher in many of the destinations popular with retirees buying vacation homes in the US sun belt.

Prices are down 44% in Tampa, 54% in Phoenix, 57% in Las Vegas, and 49% in Miami, according to Bank of Montreal, which estimates that one in five Canadians would consider buying US property. ‘The overall sense is that people are going to be looking hard,’ said Laura Parsons, a mortgage specialist at BMO in Calgary, Alberta.

The bank said Canadian buyers' appetites have been stoked by the strong Canadian dollar and expectations that US  home prices will gradually rise. But Parsons cautioned that investors should not expect to quickly cash in with flip sales as a rebound will take a long time.

Dean Frankel, a portfolio manager at Urdang Capital Markets in Plymouth Meeting, Pennsylvania, who oversees around $1.7 billion in real estate equity investments, said he sees compelling arguments to act now, if selectively.

Frankel works primarily with large pension funds looking to invest in commercial real estate, but says the market is also ripe for high net worth investors either directly or through real estate investment trusts and real estate funds.

He's particularly bullish on apartments, forecasting that rents will move higher as the US economy improves. ‘If the economy keeps clicking along and jobs keep growing, housing will be fine,’ he said, adding that it could take three to five years for a market rebound.