Early this year, a bill was approved by the Congress and signed off by Obama, which was heralded as a bipartisan agreement that avoided another shutdown of the US government. As usual, it is not a simple legislation to provide more funding to the US government but a bill with over 2200 pages. You can bet buried in the bill there will certainly have something wanted by both parties that would not be easily agreed upon otherwise. There is one provision that will likely provide a huge boost to the US real estate sector.
For those who know some history, there was a time over 30
years ago that Japan was an economic superpower. They were so rich that they
came to the US to aggressively buy a lot of US real estate assets. Triggered by
this fear that Japanese could come to acquire their trophy assets like
Rockefeller Center and Pebble Beach etc, the Congress passed the Foreign
Investment in Real Property Tax Act (FIRPTA) in 1980 that required the foreign
pension funds to pay much higher tax for investing in the US real estate. This
had effectively deterred trillions of dollars in foreign pension funds from
investing in the US real estate. Now this old tax has been lifted in this new
bill, which may likely trigger a massive influx of foreign capital into the US
real estate market in years to come. In addition, foreign pension funds were
limited to owning a maximum of 5% of a publically traded US REIT (a trust fund
for real estate investment) in the old bill, which has been increased to 10%
without it triggering a FIRPTA tax.
This is huge folks! Think about it. Currently there is
approximately $500b invested in US real estate but foreign pension funds are
accounting for only less than 2% of that figure. However, there are trillions
of dollars available in foreign pension funds. Just a slight increase of this portion into the US housing market will
easily mean tens of billions of new funds to the sector. This will be a huge
boost for the ongoing but very anemic recovery of the US housing market. That’s
why, Jim Fetgatter, the chief executive
of the Association of Foreign Investors in Real Estate, commented that “this change is a huge deal and will increase
the amount of foreign investment in US property, no question.”
So how we as individuals can benefit from this positive move
in the US real estate. Well, if you are thinking to buy a property for own
living or as investment, now is certainly a good time. Alternatively, you may
put more money into the housing related stocks or funds. One area I’m
particularly interested in is the REITs for healthcare properties, especially
those involving senior cares. Omega Healthcare Trust Fund (OHI) is one of them. As you can easily understand, the demographic
trend is a great friend for this investment as more and more US population
moving into the elderly age band on a daily basis. This will tremendously
increase the demand for healthcare in general and senior care in particular,
including hospital facilities, senior communities, and senior care centers. OHI
is specialized in this area. The market turmoil at the moment has caused
blinded selloff in almost every sector and OHI is not immune to it. It has been
hair-cut by over 20% from its high but I think this is overdone. Good news is
that with this haircut, OHI will pay investors much more with a current yield
close to 7%. The market will certainly continue to fluctuate and no one knows
when this turmoil will end. But OHI high yield will ease some pain if it
continues to slide down. I’m sure over time this will be a great investment for
retirement, especially via dividend reinvestment that will welcome any weakness
of its share prices as long as its underlying business is intact and producing
sufficient cash flow for dividends. I don’t see anything significant that will
negatively impact its business and the new positive change in the real estate
tax law on foreign pension funds will only help! I’m adding more shares of OHI
and will continue to do so, taking advantage of any weakness of OHI prices.
No comments:
Post a Comment