Since the start of 2008 we at Overseas Property Centres have seen over 11% of our enquiries being focused on property in the US, especially Florida. That’s a lot when you consider that we offer properties in over 25 countries. Only France has been more popular (the category for “unknown” tends to be where the enquirer has specified they are after a type of property rather than a specific location, e.g. a holiday home or an investment).
Country Total
Australia 0.67%
Brazil 2.36%
Bulgaria 4.21%
Cape Verde 0.51%
Croatia 5.39%
Cyprus 0.67%
Czech Republic 0.51%
Dominican Republic 0.34%
Dubai 6.23%
Egypt 2.53%
Florida/US 11.11%
France 15.32%
Germany 9.26%
Italy 4.88%
Mauritius 0.17%
Morocco 0.84%
Multiple Countries 0.17%
New Zealand 0.51%
Poland 2.36%
Portugal 5.89%
Saudi Arabia 0.17%
Spain 4.21%
Thailand 5.72%
Turkey 1.18%
Unknown 13.97%
(blank) 0.84%
Grand Total 100.00%
So, is this a sure sign that the time is right to buy into the American Dream or is it just proof that the lemmings are on the march?
The statistics leave plenty of room for interpretation
Florida in particular has always been and will remain a favourite place to buy property whether as a long-term investment or as that regular holiday home destination. The state enjoys huge levels of tourism – over 52m visitors each year – lured by the attractions of Disney, Universal Studios and Cape Canaveral. It has some of the lowest unemployment anywhere in the US and is home to numerous ex-pats who have retired there from all over the UK as well as from some of the colder northern states.
Yet it has not been immune to the credit crunch and house price slump seen across the US such that prices are now remarkably low (you can get 3 bedroom homes for as little as $100,000, or around £50,000). Buses are touring around the area with buyers avidly looking for that bargain repossession and some sales have gone through at amazingly low prices. Repossessions last year totalled over 30,000 and many more foreclosures may yet come this year. Prices appear to have stabilised for the better properties but the market can hardly be considered to be robust and continued vulnerability will probably hold back price rises for a while.
But Florida is probably better poised than most parts of the US to weather these storms. As Forbes Magazine said of Florida: “The damage from risky lending isn’t as drastic as other parts of the country and employment growth suggests inventory [unsold housing stock] can burn off at a healthy rate.”
Do not let the currency seduce you into being molested
Given the rate of exchange at the moment (hovering around the $1.95 mark) it is no surprise that Brits who have maybe had their eyes on Florida real estate for a while are seeing now as the moment to strike. But they cannot account for all this activity, some of it must be investors and gamblers seeing the opportunity for a quick buck. But beware – property is an illiquid asset meaning that when you need to sell a house it can takes weeks and months to conclude the transaction even in benign market conditions.
If the exchange rate is your main motivation then remember that it is a two-way street: it can generate you profits even when the price of houses remains unchanged and it can also wipe out any gains from a rising property market. Unless you plan to hold your property asset for at least a few years it would be unwise to use property as the mechanism for betting on currency movements.
What about the wind?
It is true that Florida does get battered occasionally by hurricanes although the impact of these tends to be felt mostly on the coast and the wind speeds have generally dropped quite a bit by the time they get to inland regions such as Orlando. Nevertheless, it would be folly to buy without checking that the construction of the house you are purchasing is adequate for the possible wind strengths the state can see.
New homes in Florida nowadays are built to a quality standard control set by the national builders’ federation and the State authorities, which are most strict. All new homes sold should come with a 10 year warranty on build standard.
As a guide to construction, currently new homes are built in a concrete block. This the preferred method in Florida although there are some which may have timber frames; most are solidly built to withstand a direct hit of wind in the region of 120 miles per hour as this is a current requirement. There are of course many homes of sub- standard construction existing throughout the State having been built prior to the current regulated building code implementation. When conducting your research make sure you check out how the house was built as it will generally be difficult to tell this from pictures in a brochure or on a website.
The best option is to find a new home in concrete block that has been constructed in the past 3 years albeit anything up to 5 years may be acceptable. This should avoid any possible chance of a sub-standard construction being considered.
If you want to earn rental income beware the zoning laws
Not all property in Florida is automatically allowed to be used as rental accommodation. The state government uses zoning laws to determine how communities should be allowed to develop and therefore to what uses the residents in a community can put their homes. In a sense these are similar to planning restrictions anywhere else – you cannot suddenly turn your 3 bedroom semi in Knightsbridge into an iron foundry without permission. But in Florida these laws are even more rigid.
Basically, the local government determines what type of community is desirable in a particular location and that then determines what the properties in that community can be used for. It is possible to obtain special use permits entitling the owner to change the use of their particular property but these are not granted in every circumstance and the determining factor will be whether it is considered to be in the best interests of the community.
So, even if your neighbour has the right to rent out his property you cannot assume that you will have equal rights – it is another thing you need to get your lawyer to check before you part with cash for the house.
Title insurance – the Americans do things differently
For Europeans the concept of title insurance is not especially familiar, but in the US almost all property transactions depend on this insurance and the companies behind it frequently do much of the legal conveyancing work too.
In essence, title insurance is peace of mind for the owner – an insurance company such as Stewart Title provides a policy stating that the owner has good title to the property. If subsequently a problem surfaces – the neighbour has a right of way across your garden or one of the previous owners has not signed a document properly – then instead of having to sue your solicitor and wait for the courts to decide how much he has to compensate you with the insurance company pays you for any loss and it is then their problem to sue any negligent solicitor.
One of the main benefits in the US of this system is to avoid a nasty bil from a tradesman who has not been paid by the previous owner as US laws give such tradespeople a right to what is known as a “construction lien” – a charge against the property so that it cannot then be sold without discharging the tradesman’s debt first.
Safe as houses - almost
Whatever the state of the property market in the US one thing is for certain – it is amongst the most well regulated real estate markets in the world. All agents have to be licensed and many buyers retain the services of buying agents to act on their behalf, thus removing the conflict of interest that can be a problem in the UK for instance.
Tales of unscrupulous dealers are considerably reduced by the strong regulation in the market making a purchase of US property probably one of the safest anywhere – the risk of the property price moving is no different to any other market place but at least the potential for being duped and defrauded is much lower than in some more “frontier” territories.
