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Where are the Foreign Home Buyers?

By Hannah Wallace January 31, 2008

Nick Marr is a popular guy among Florida real estate sellers.

“I am getting so many calls offering great deals in Florida,” says the owner of Marr International Ltd., a London-based real estate listing company that partners with real estate Web sites around the globe. “One offered a free new pool for the buyer. Another offered a free car.”

What’s triggering these transatlantic offers? British buyers have been very active in Florida over the past few years. Just three years ago, at the height of the real estate boom, with skyrocketing prices and a still-strong U.S. dollar, foreigners scooped up a hefty 15 percent of all real estate sold in Florida. Now, Florida properties are bargains in comparison. There’s a big choice of distressed properties, prices keep falling and the dollar is at an all-time low. So foreigners—especially Brits—should be swarming toward Florida real estate like a herd of hungry grasshoppers, right?

Not quite.

“People buying just on exchange rate are few and far between,” says Frank Pointon of Changemaker Property Ltd., based in Stratford-upon-Avon. He manages a pool of British money that primarily buys distressed Florida properties to flip them in a matter of weeks.

Indeed, the main direction foreign buying has been going in Florida, and even more so in this region, is down. An analysis of property ownership data in Sarasota and Manatee counties by Biz941 shows that there were considerably fewer foreign owners in our area in 2007 than in 1999. While the total assessed value of properties owned by foreigners here rose from $693 million to $1.9 billion in the eight-year period—reflecting booming real estate values—the number of properties dropped 22 percent, from 9,289 to 7,250.

Canadians are the largest group of foreign property owners here, but they have been leaving the area in droves. The number of Canadian-owned properties dropped 35 percent since 1999, from 6,263 to 4,074.

The drop seems counterintuitive since the Canadian “loonie” is near a 33-year high against the U.S. dollar, and the Canadian real estate market is expected to remain stable in 2008. But Lawrence Barker, executive director of the Toronto-based Canadian Snowbird Association, contends that Canadian buying in the Sunshine State has been declining for years, and that the strong loonie won’t reverse that trend. The main reason, according to the Toronto-based snowbird association, is Florida’s Save Our Homes amendment that caps property taxes for primary residences, but frees taxes for all other properties. Canadians are spurning Florida and buying homes and condos in other U.S. markets such as Arizona.

“You may have a condo building in Florida, where one unit owner pays $3,000 in property taxes, and the guy in an identical apartment across the hallway pays $13,000. It’s a big issue for [Canadian] snowbirds. A lot of people have this misconception that snowbirds are fat, big cats. There are some millionaires, but the vast majority are modest middle-class people, or retirees living on a fixed income.”

Germans also have been running for the exit. From 1999 to 2007, the number of properties in Sarasota-Bradenton owned by Germans fell by nearly half. In 1999 Germans were the second-largest group of foreigners owning real estate here; now they’re third, far behind British owners who are the exception from the downward rule (see “German Exodus?” page X).

And the most recent available figures aren’t encouraging. As recently as 2006, Sarasota-Bradenton saw considerably higher declines in foreign buying than the overall state. According to the 2007 Profile of International Home Buyers in Florida study, published in May by the Florida Association of Realtors, existing home sales to foreigners in Florida in 2006 suffered a breathtaking 65-percent drop—to 28,900 from 81,900 in 2005—while overall sales declined only 27.6 percent. The share of foreign buyers in all transactions dropped from 15 percent in 2005 to 7.3 percent in 2006. Sarasota-Bradenton’s fall was even harder. In 2006, our area captured only 5 percent of all foreign homebuyers in the state in 2006, down from 13 percent in 2005.

Many owners of businesses catering to Germans and Canadian property owners believe that Sarasota and Manatee real estate has little chance of again attaining the buying levels the area enjoyed during the late 1990s, Florida’s golden age of foreign real estate investment. Pessimism is prevalent.

Take Fritz Mayr’s Overseas Realty, which builds entire subdivisions for mostly German buyers and then manages the homes for their absentee owners. The Bavarian entrepreneur, who has built, sold and managed real estate in Sarasota since 1980, says that—at least when it comes to German buyers—foreigners are staying away this time.

“During previous cycles a low dollar usually triggered gigantic [buying] booms. Not this time,” Mayr says. “Even though the dollar is as low as ever, I don’t see a lot of interest.”

Mayr cites two reasons for Germans’ abstention.

“One is economic. I have mainly investors, not second-home or first-home buyers,” he says. “And these clients are looking for profits. In earlier years, I could promise them 7 percent net. But official prices have gone up, and expenses—mainly property taxes and insurance—have risen disproportionately. So the profits aren’t right anymore. Also, the overall sense of insecurity about the U.S. [real estate] market is affecting German buyers. The second reason is a general anti-American sentiment caused by the Iraq war and stricter immigration practices. There’s little interest in Germany in doing anything here. In the old days, going to Florida was the fashionable thing to do. That image is totally gone.”

Over the past few years, Mayr has put his money into developments in Costa Rica, a market he sees as the next frontier. Mayr is jumping on a trend going against Florida, once a darling of European and Canadian buyers: Foreign—and, for that matter, U.S.—real estate investors are going global. When wooing British buyers, for instance, businesspeople selling Florida real estate must now not only compete with long-standing investment home markets such as France and Spain, but with a fast-growing number of low-priced newcomers such as Bulgaria, Morocco, the Dominican Republic, Mexico and Costa Rica.

“The British buyer has got the world at their fingertips,” says Nick Marr. “Spain and France are established markets. Because they’re nearby, accessibility is not an issue. Last year, everything was Bulgaria. You can find a studio there for as little as 35,000 British pounds. In Brazil, you can buy a sizable chunk of land for 6,000 pounds.”

Foreign investors who are still interested in Florida seem to be seeking better deals in smaller and more affordable Florida cities such as Fort Walton Beach and Melbourne, according to a survey compiled by the National Association of Realtors. Nearly one-quarter of international buyers in Florida in 2006 bought real estate in areas such as the Panhandle and Middle Atlantic towns, outside the larger metropolitan statistical areas. As a result, most metropolitan areas in Florida saw slight drops of their share of foreign buyers. (The exception was Tampa-St. Petersburg, which increased slightly.)

Despite all these grim statistics, anecdotal evidence in late 2007 hinted at a rise in foreign buying, especially among British investors.

“This is a very busy time for our company”, says Lee Weaver, owner of Kissimmee-based British Home Loans Florida. “Sales inquiries are reaching the record numbers of three years ago, the only difference being there is now inventory available to meet that demand.”

There also seems to be a slight German resurgence. In 2006, 14 percent of all foreign buyers in Sarasota-Bradenton were Germans, more than twice as high as their 6 percent share of foreign-owned properties in the area.

Finally, there has been a surge of investors who buy wholesale, trying to turn a quick British pound or Euro on distressed Florida properties.

Pointon’s Changemaker Property Ltd. is a vehicle for such investors. His company serves as a pool and agent for a couple hundred cash-rich and time-starved investors. Besides buying and selling single-family homes in Florida subdivisions through regular retail channels, Changemaker is also active in what Pointon calls the wholesale market. The fund flipped at least 200 U.S. homes in 2006, mainly in the Tampa Bay area, according to Pointon. He has recently worked with Pat Tan of Keller William Realty in Sarasota to identify suitable properties.

“It’s growing,” Pointon says. “It’s a good way for many investors to turn a profit faster.”

Says Marr: “Florida is not over. Florida has a history; it’s not a new market. It’s not outrageously wild or scandalous. The legal system is very good, and the real estate industry is very regulated, which is very good. Obviously, you have a constant tourist market. And you have a good rental market.”

Still, real estate brokers and sellers shouldn’t be popping any champagne bottles yet.

The British real estate market is showing signs of distress—including faltering mortgage banks, large inventories and dropping prices. Most British investors are borrowing on equity from their British homes to buy abroad. And that makes it unlikely the British buying boom will continue unfettered.

The larger liquidity crisis also reduces borrowing opportunities for British buyers. On Oct. 18, GE Money’s British Mortgages Abroad unit, the most popular mortgage lender with British homebuyers in Florida, stopped accepting mortgage applications.

Even the bottom fishers are having difficulty turning around their properties. Says Pointon: “At the moment, our properties are taking too long to sell. We are increasingly moving towards the lease market.”


Auf Wiedersehen?

Compared to the British market, German real estate is doing just fine. While the residential market is essentially stagnating, commercial real estate is flourishing. According to analysts, contagion of the liquidity crisis is not likely to affect homebuyers.

Yet many Germans are selling their Florida properties, and Ino and Dolf Predmerski are about to join the exodus. The couple from Detmold, Germany, recently decided to sell their two-bedroom condo at El Conquistador in Bradenton after 10 years of spending every winter here.

“We bought the condo in 1997, at a moment when the dollar was similarly cheap for Germans,” says Dolf Predmerski, who owns a marketing consultancy in Germany. “Back then, prices in Florida were extremely low for us. It wasn’t a bad investment, but I wouldn’t do it again today. Taxes and maintenance costs have risen enormously. And higher real estate prices in Florida make buying not as interesting anymore.”

Add to that the increasing hassle of getting to and entering what feels like fortress America. “Airfares from Germany are fairly low and nonstop flights to Fort Myers are quite attractive,” Predmerski says. “But for quick trips to enjoy our condo, travel time is really long. And customs and immigration here have become a major drag since 9/11.”


Another British Invasion

Local builders and realtors owe a big thank you to British real estate investors, who more than doubled the number of properties they own in Sarasota-Bradenton to 1,685 between 1999 and 2007.

“They really like Florida,” says Carla Rayman of Cloud Nine Realty in Sarasota. “They’re looking for areas beyond Orlando. They’re investing in businesses and hotels, anything that can help them get a green card.”

A hefty 41 percent of all foreign buyers in Sarasota-Bradenton in 2006 hailed from the United Kingdom, according to the Florida Association of Realtors. Their share of foreign buying here was as high as in Orlando, the original British bridgehead in Florida. The British are joined by their recently prosperous neighbors, the Irish, whose holdings in Sarasota-Bradenton nearly doubled over the past eight years, to 62 properties.

Lynne and John Nichol are part of this British “invasion.” The postal worker and retired mining engineer from Newark, Nottinghamshire—not far from Sherwood Forest—bought a three-bedroom lakeside home in Bradenton in 2001, after vacationing in Florida three times.

“We originally decided to buy a property in Spain,” Lynne Nichol recalls. “However, the building policy over there is intense and overcrowded.” They chose Bradenton for the investment value, proximity to “all things Florida” and strong vacation rental market. Nichol says their vacation rentals, have been “very successful,” achieving 80 percent occupancy. High property taxes and insurance costs are concerns. But Bradenton has become a lifestyle destination for them.

“We visit our house four times per year,” she says. “We love [the area] more each time we go there. They’ve even thought about buying a second rental property..

As to travel, cost issues seem to be a bigger concern than stay limits, fingerprinting and other border hassles. “We try to catch cheap flights and come over off-peak as much as we can,” Nichol says. “We try to come into Tampa airport, usually via New York, although British Airways does a direct flight. We have also flown into Sanford Orlando Airport on a charter airline.”

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