The best solution to current real estate problems.

By John Chung

real estate is the main trigger of the current economic recession. Properties sold to foreigns and investment capitals coming from overseas banks are considered export business. As the current recession is derived from the real estate market crash, recovery should also come from real estate. We must invite foreign capitals to invest in real estate property.

during the time of real estate boom many buyers who purchased real estate dud so for investment purposes. Buyer investing on multi-units for short or long terms made profit. The profit was re-invested in bigger projects. Now that the home price is down and we are still unable to see the bottom, foreign investors find no reason to invest in real estate anymore. They left the market, but the good news is that foreign buyers are coming back, looking for bargain deals. For sale promotion, if developers or sponsors offer sales incentives and elliminating discriminating policies. The market surely can awaken from a deep sleep. Our tax and financial systems have practically blocked the doors to foreign buyers, by enforcing rediculous requirement such as presenting Social Security numbers when applying for a mortgage, refinancing mortgage, and applying for home equity.

Buyers from other countries always want to buy properties in U.S., and there may be hundred of reasons to do so. Parents want to buy homes for their children who attend college in the U.S. America is still considered the safest place to invest their money in. The reasons for buying property are not only to make profits only. The main reasons are to distribute wealth to other countries as safe investment approach. The U.S. remains a perfect place for taking in the extra money. selling properties to foreigners is a good example of export business. Sale of real estate is more profitable than exporting cars or beef. More importantly, it creates important jobs immediately and increase tax revenue substantailly. I strongly believe that, with respect to properties  sold to foreign buyers, sponsors/ builders of these properties should be entitled to some sorts of special financial advantage over those making regualr deals with the government. mainly because this is main parts of export business.

Tax revenue

How much tax revenue is to be collected?

• A foreign buyers, Mr. Lee, owner of a small toy exporting company in Korea sends his son to Columbia University. He visits New York on average of four times a year for business last year. Last year, 2008, he purchased a two-bedroom condo located upper east at price of $1,460,000.
• Here is a summary of the expense he paid $59,134 as closing cost.
• Paid $47,038 to title insurance company for title insurance, transfer tax, and recording tax.
• Legal fee for sponsor $2,000
• Recording fee $250
• Title insurance $350
• Two months common charge $1,876
• One month common charge $938
• Attorney fee $2500
• Resident managing fee portion $4182

A total of $59,134 net closing expense was paid to insurance agents, Attorney, real estate management company and for tax revenue. Once hem moved in after the closing, he pays a common charge $12,000 per year plus property tax. One out of every three units of total condominium properties of 300 units of new development, which is sold to foreign buyers, has an approxmate total value of $150 million dollars. This means that this new development project bring total $5 million dollars from foreigners as tax revenue and service combined. Mr Lee paid full purchased price, money transferred from his home bank account. Property purchased by foeign nationals paid with money from foreign banks is a good case of export transaction.

Where are foreign investors now?

They are not coming anymore, not only because the U.S. real estate market is down but also the credit market has completely closed its door to foreign investors. The following are the reasons foreign investors are not coming and unsold NYC real estate properties are collecting dust.

Home equity appliction denied

Buyer Mr. Park is a foreign resident. He paid full price of a condo on East side near U.N. building. because the buyer is a foreign resident, who has no social security number.

Mortgage application denied

Business man Mr. Han purchased a condo for his daughter, who attends college in NYC.  The property is located in upper east side, Manhattan. He signed the purchase contract in 2007 and deposited 15% of purchase price $450,000. In september 2009. he is expected to close the deal purchased at $2,550,000. He was advised by banks mortgage is not available at all only because the applicant has no Social Security number. The amount of mortgage Mr. Han applied is only $500,000.

Deposit money in danger

Henry lee purchased a two bed room condo in Manhattan, in the spring of 2008. Signed contracted price is $1,500,000. He paid 15% of the purchase price , which are $25,000. He signed the contract with least concern about fianancing the purchase of this property.  Last week, he received a letter from the sponsor advising him of the closing date March 25, 2009 for the property he purchased. Henry is now experiencing unexpected difficulties in getting a mortgage. Henry is not able to avail of mortgage, even thought he intends to deposit more than 50% of the purchase price, simply because he has no social security number. Henry is not U.S. resident. Henry needs only 30% of the purchase price $450,000.

Unequal mortgage rate

Mortgage lenders normally quote the extra higher paoints of mortgage rate to foreign buyers for unknown reasons.

Why are foreign buyers important?

The bad news about discrimination against foreign buyers is spreading quickly, like wild fire. No investors from foreign countries show interest in buying New York properties, regardless of the price discount offered by sponsors. Foreign buyers do not need social security numbers when they buy property, but they do need them when they apply for fiancing , refinancing, or home equity loan application. Since mortgage or refinancing has been denied by banking industry in 2008, I have not sold any single property to foreign investors. I, as licensed broker, must disclose all the details of potential problems to buyers. Banking regulation and credit market policies practically closed the real estate market door to foreign buyers. America needs foreign to revive the slow market.

Who are foreign buyers?

• Generally pays 100% of the purchase price
• Most are small medium-sized business owners and professionals
• Purchase the properties for his or her own children, who stay NY with student Visa.
• purchased for business, investment, immigration purpose.
• Less credit risk reported.

Why is it important?

• Substantial tax revenue
• Continue income source  from common charge, property management fee, utility bills.
• Local business contributed to buy furnitures, electronic appliance, cable service, utility, foods and service charge.
• creating employment opportunity

Immigration Incentive(EB 5 Visa)

No matter how bad our economy is, America is still considered a great nation and an immigant's haven. Many people from other nations would like to apply for an immigration Visa, even if the process cost a substantial amount of money. American needs good qualified immigrants who can bring in foreign capital to the country and thereby may create jobs.

The most attractive features in America to a foreign are the best business opportunity, education. medical, science, environment, and investment climate. If the government's E-5 Visa program covers new buyers of real estate with a value more than $1,000,000 this will definately boost the sale of unsold properties. America needs infusion of foreign money invested in real estate. Several thousands of immigration hopeful are waiting with tons of money to invest. Without investors  moving in from overseas, no real recovery of the real estate market can be accomplished.

What is an EB-5 Visa?

The U.S. Congress created the EB-5 immigrant investor visa category in the immigration Act of 1990 in the hopes of attractring foreign capital to the U.S. and creating jobs for American workers in the process. The overall advantage of the EB-5 visa category is that it allows the beneficiary to engage in commercial enterprises anywhere in the U.S., subject only to some restrictions in the pilot program targetting certain areas.

The current EB-5 Visa purpose is direct creation of jobs for at least 10 U.S. workers. Supposedly potential immigrants can purchase properties in the residential or commercial NYC or NJ metropolitan area. The actual purchase value of more than $1,000,000 or more will have tremendous jobs creation impact directly or indirectly.

Hunreds thousands of students come to the U.S. to gain advanced knowledge and look for business or jobs opportunites after graduating from college. But chances are these are very hard to get. Some students decided to return to their homeland others remain here searching ffor immigration opportunity. After that, their student Visa expire and they become illegal immigrants.

America needs a continueous influx of young talented workers and new capital. In NYC alone, some hundred thousand condo or commercial properties are in the inventory list. furthermore more new properties will come in 2010.

I firmly believe that it is not impossible to make a sale and reduce the inventory of unsold properties drastically , making rooms for new construction. The new construction creaes new jobs and tax revenue, provided the U.S. Congress expands the Visa category in the immigration act of 1990 to the metropolitan area and amends the law currently stipulating discrimination of financial policy to foreigners.

Sales incentive in Seoul.

recently, many Korean residents who lives in the NYC-NJ area, have purchased luxury condo units being developed in Seoul Korea for investment or retirement place. The main reason for t he buying spreee is the difference between the Korean Currency Won and dollars exchange rate advantage, plus the attractive incentives offered by developers. Many investors believe that the exchange rate works favorably to induce people to buy. however, this was not the only reason for  buying. Local banks offer favorable loan (Mortgage)terms to foreign buyers at better rate tah they do give local residents. Sponsor do not ask for National ID numbers or income statement , unlike the banks in NYC.

Why the korean government does support this program directly or indirectly? It is because selling usnsold properties to foreigners is considered substantial stimulation of the construction business Real estate industries are the backbone of employment.

The details of incentive offered to foreigners are:

• Contract money required is only 25% of purchase price. For the rest(75%), the sponsor gets financing assistance at a special rate. Neither income statement nor national ID number (equivelent of SS numbers) is required. Sponsors and developers arranged a financing deal at special rate.
• Registration of ownership fee discount of 60%
• Capital income tax discount of 50% when it is sold for any profit.
• Round trip ticket from NY to Seoul and hotel stay expense paid by some sponsors
• Rental income guranteed for 3 years after purchase by sponsors
• Regretfully, none of those incentives exist when foreign buyers purchase properties in NY.

New York real estate market need buyers from oversea.

Oversea buyers purchase properties for investment purpose. Anyone who is willing to deposit more than 50% of the purchase price generally is being considered as qualified buyer, not a sub-prime buyer. Oversea clients have good income, but naturally few have income statement acceptable to financial institution in U.S. The mortgage terms and conditions must be adjusted for oversea buyers' personal situation.

Buyers who paid 100% of the purchase price  and owned 100 % home equity should be allowed to apply for a home equity loan. Currently, No U.S. banks will accept the application for home equity loan because foreign clients have no social security number.

Incentives for foreign buyers urgently needed.

• Issue special SS number for financing and tax return purpose.
• Tax incentive should be given to foreign investors
• Mortage incentive needed
• Refinancing home equity must be allowed
• Income tax incentive given to capital gain
• all service fees(brokers's fee, attorney fee, insurance agents fee, etc) should be given special rate.