I suspect the housing bubble will become even hotter in the U.S. in 2022 once countries ease on restrictions, lockdowns, mandates, and increase spending limits for foreigners.
Why do I believe the market will soon become a sauna?
Believe it or not, American land, not real estate, is one of the cheapest in the world.
No wonder foreigners from China, Canada, Saudi Arabia, and the U.K. are flocking overseas to bid up housing prices and push out American buyers. Itâs cheap, quick, a hedge against inflation, and hidden. On Thanksgiving I decided to watch some mindless TV with my grandparents. I rarely do this so this was a big deal for me. It took us roughly 40 minutes to find something to watch. Thanks Netflix for the overabundance.
We finally chose Netflixâs hit show, âSelling Sunsetâ. According to my college sources, I heard it has an enormous cult-like following. What immediately stood out to me was that almost all of the clients from the Oppenheim Group, the real estate agency featured on the show, who were interested in Californiaâs exclusive affluent properties in neighborhoods such as the Hidden and Beverly Hills were foreigners! From a peanut farmer to wine connoisseur, Russian billionaire to Saudi princess, not only buyers of these mega-mansions were business owners, which was not surprising considering thatâs the real way to become financially free, they were non-U.S. based! I suspected that to be true. Itâs a similar case with Manhattan and Miami luxury real estate. Only a handful of owners are U.S. entrepreneurs, hedge fund managers, financiers, engineers, TikTokers, gamers, entertainers, etc. The rest are from abroad!
One of the unique aspects about the show is that the realtors actually show who their potential buyers/ real buyers are and out of all 10 episodes from the new season, yes I watched the whole thing, there wasnât a single buyer that was American besides the realtor who bought a property for herself! Foreign buyers are attracted to luxury real estate because it holds its value, generates various income streams, isnât a co-op or managed by a board, and they can park their money in an appreciating asset so the govât doesnât decide to take it away one day. Most of these homes are vacant anyways! Although California real-estate is mainly made for the top 10% and above, they arenât made for 10% of Americans. There are only so many Musks and Bezos. Donât ever get jealous about obscene priced properties listed on the market. Most people arenât as well-off as they look especially with the drastic differences in wealth ownership in this country. Foreigners are crowding out the real-estate market like thereâs no tomorrow. Luckily they are snagging the properties majority of us cannot afford anyways but not for too long.
Foreign Who?
Foreign buyers not only buy up vast amounts of land and luxury real estate in the U.S., they tend to pay full cash for properties which allows them to have priority since itâs more attractive to the seller to execute the transaction faster and get the money straight way versus from a potential buyer looking to take out a hefty loan to pay for the property over the next 30 years. Since most Americans have trouble putting 20% down, the recommended deposit, and take on lofty mortgages that drain their budget, they are priced out of the market by foreigners.
Although land may be relatively cheap, housing isnât, especially in and outside of the U.S.
This past week, the Economist Intelligence Unit unveiled their biannual âmost expensive city in the world to live inâ report. By the time this report was published, foreigners have already been placing offers on these hot housing spots.
Getting right to it, in first place, Tel Aviv, Israel is now officially the most expensive city to live in in the world. It jumped from fifth to first from last year!
Before we unpack and go down the rest of the list, letâs understand how Israel got the top seat and what it did to go from fifth to first in under a year.
Israelâs Skills
Since the pandemic began, Israel enforced strict mandates, lockdowns, covid procedures, and regulations. There was no fooling around. Israel is known for its medical centers, practices, health care officials, and prestigious medical research institutions. Although the U.S. has arguably as advanced research centers with pharmaceutical behemoths and billion dollar medical schools, we somehow still couldnât catch up to the pace Israel was operating in. Our response in mitigating the virus was embarrassing, nowhere near as effective as Israelâs and dozens of other wealthy countries efforts in combating the first mutations and cases.
Itâs no surprise the U.S. is polarized on virtually everything except for maybe football, a sport that only has 1 winner. Anyways, America is TOO free to the point where every state has their own rules, mandates, procedures, and some even believed the deadly pandemic was a hoax all together!
No one would have thought that masks would become a political issue. The same reason we must wear clothes in public, we must wear a mask! People here seem to have too much freedom, time, and social media that they have no concern for getting others infected. It is disrespectful and disgraceful. Other countries in South East Asia, Europe and Australia could not tolerate this foolish American behavior and thanks to their logic and strict measures, they saved more lives and got back to life faster. Pick your battle.
Although several countries such as Morocco and Singapore are closing down their borders and enforcing more lockdowns due to the new SA variant, omicron, they still have far fewer cases than the U.S.. Even a Disney park in China shutdown after discovering 1 case and forced theme park goers to stay put in the park until everyone got tested. That would not end well in U.S. Disneyland.
Israel has been a leader in the covid fight and has one of the fastest Covid-19 vaccination programs. Not to mention, as many advanced nations in this world have adopted, except for the U.S., healthcare is universal and a basic right in Israel. All residents have a basic plan and health care is free. Israelis can opt to increase their medical coverage and enhance their options through private health insurance but it isnât mandatory to pay extra.
According to Our World in Data, 63% of Israelâs population were fully-vaccinated as of this week compared to 59.4% of the U.S.. Americans are getting there but compared to Israeliâs stringent measures and rapid testing, the U.S. is a disappointment once again. At least we have strong land and expensive homes to feel powerful.
In terms of the economy, Israelâs dollar, the shekel has been up 4% year-to-date and inflation rate of the prices has risen by 3.5% with more residents enjoying real life again. This rapid rise in inflation has accelerated prices to the brink and is an indicator that wages are rising with prices otherwise there would be less or the same spending as pre-covid levels.
The strength of the national currency against the dollar has allowed Israel to be unbeaten by the coronavirus pandemic. Unlike in the U.S. where specific goods, services, and products are more expensive than others such as gas, retail goods, and food leading inflation to the brink, everything from hotels to food to housing is beyond exorbitant in Israel.
Readers, if youâve ever traveled, experienced, and or lived in Israel I would love to hear your experience and how your budget survived.
Now that weâve unpacked how Israel is no joke in many ways, letâs look further down the list to see where getting our bang for our buck may not pay off right away but still be worth it down the road.
The most expensive cities in the world 2021:
1. Tel Aviv, Israel
2. Paris, France + Singapore both tie for second place
4. Zurich, Switzerland
5. Hong Kong, China
6. New York, U.S.
7. Geneva, Switzerland
8. Copenhagen, Denmark
9. Los Angeles, U.S.
10. Osaka, Japan
Iâm not surprised Europe is becoming a more expensive place to live. With an organized social welfare program, reasonable work-life balance, and healthy and enriched residents, whatâs not to like? Okay, besides the weather, anything else?
Social welfare includes everything that leads Americans into debt, most dangerously medical debt. It includes free health care insurance, education, parental/maternal leave, and unemployment stimulus. This increases more happiness and prosperity for all. The Nordic countries of Switzerland, Denmark and the Netherlands also rank the highest on the World Happiness Index you can check out here. Although Europeans have higher consumption tax, it pays for itself when everything else is free.
Anything else backwards in the U.S.?
Although everything seems like it, ironically, immigrants and foreign buyers still flock to the U.S. for innovative transformative opportunities, connections, universities, LAND and more LAND and to live the hyped up American Dream that isnât as widely adopted elsewhere, but that soon might change. Anywhere you go, you must put in the work to let the work for you. Nothing will be given to you on a silver platter. What you put in, is what you get out. I try to remind myself this daily in college as the cost is only rising two, three-fold each year above inflation!
Below Zurich, we have Asian, European countries, and the U.S.. Israel is the only country that is in the middle east, at the crossroads of Europe, Asia and Africa. All these countries prioritize education, technological innovation, (most) a work-life balance of some sorts, (once again, most) healthy lifestyle and diet, and have leading medical researchers and institutions. Currently they are all recording high amounts of inflation around ~4% and were the first advanced countries to take part in the vaccine rollout. Once the vaccines were administered at the end of 2020, supply was administered through a first-come-first-serve basis and these countries were first on the list.
Differences + Similarities
Although not all of these countries are part of the G7, the most advanced industrial nations, all of them could qualify to be a part of this elite group after witnessing their vaccine rollout and their handling of this deadly virus these past 18 months. Almost all countries, depending on where youâre from, exhibited diligent protocols, procedures, and a task force to getting the economy back on its feet from the pandemic. Without inflation, thereâs still a recession which none of these countries are going through.
We really witness someone, or in this case, a countryâs greatness during times of hardship. Their true character and perseverance comes out when everything is in limbo and uncertain. How they dig through the tough times illustrates more about what they can do than during the blissful certain times. These countries have preserved and not let their guard down which is why they are at the top of this list.
We are all craving to visit an unknown land and venture out to explore new communities. Many buyers are already tired of their new 2020 pandemic crib in the suburbs. Rule of thumb: Low interest/mortgage rate environment does not mean you arenât spending money. It may be an enticing selling point, but thereâs still money being spent.
Although travel may be put on hold once again especially as we head into the winter season where the virus spreads more easily indoors, it doesnât mean you canât spend some time building your robust investment portfolio and nest egg. Real estate is a core part of strategic investorsâ portfolios, at least 50% of the ultra-wealthyâs and isnât only tailored for foreign business owners or government officials!
Real estate comes in different shapes and sizes and is made for all. Real estate takes up about 30% of my portfolio by owning 1 rental property and investing in crowdfunding through Fundrise and CrowdStreet (not sponsored or affiliated in anyway). From crowdsourcing to eREITS, foreign land, or a fixer-upper, you have the choices and time.
Itâs up to you to take part in building and owning the American Dream and land before foreigners take it!