The global housing market has been on a tumultuous roller coaster since the COVID-19 pandemic, with heightened demand creating a worldwide supply shortage that's pushing home prices to all-time highs. The situation has been exacerbated by the rising interest rates, causing U.S. home prices to hit record highs in June, according to a report released by Black Knight.
But Americans are coming up with creative ways to settle down during the cost of living crisis. A new trend noticed in the U.S. real estate market is a diaspora to European countries, made feasible by the remote working culture or through sound retirement planning.
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Spain: The Coveted Luxury Destination
The number of Americans residing in Spain increased by 13% between 2019 and 2021, according to a report from the General Council of Notaries in Spain. Simultaneously, American property purchases surged by 88% from the first half of 2019 to the first half of 2022.
Among the expatriate communities investing in this sun-drenched nation, Americans secured the second position with expenditures of up to 2,837 euros ($3,119) per square meter, trailing only the Dans. The report also highlights that American buyers were responsible for the most substantial growth in home prices during the same period.
U.S. residents are directing their attention toward urban centers such as Madrid, thanks to the attractive employment prospects and high standard of living, according to the report.
Affording European Property Taxes And Managing Debt Levels
Despite its ups and downs, the real estate market has delivered consistent performance over the past few years, and wealthy people are diversifying their property holdings across the ocean irrespective of the higher costs.
The majority of property-related taxes in Spain are settled in advance through a stamp duty, known as AJD in Spain, rather than through the annual property tax system prevalent in the United States. Because of this law, people buying homes in Spain tend to pay most of the tax obligations upfront rather than spreading them out over the years.
"The stamp duty can run from 1% to 2.5%, and then there is [value-added tax] on new construction or transfer tax on preowned homes," said Jude Boudreaux, senior financial planner at The Planning Center in New Orleans. "It's all substantially more than in the states."
Taking the laws regarding dual taxation into account is crucial because the U.S. charges taxes on the income its citizens earn globally.
Digital Nomad Visas Are The New Normal
The ultra-wealthy are eligible for digital nomad visas to Spain and certain other European countries, which encourages tourism and boosts the local economies. Designed for international teleworkers, such visas are offered to people with more than three years of professional experience, provided they comply with requisite professional certification requirements.
"Prior to having this visa, it was difficult to work in Spain because the tax rates were so high and there wasn't a clear-cut immigration regime, other than the ‘golden visa' that allowed you to move to Spain and work," said to Alex Ingrim, senior investment analyst at Chase Buchanan.
The golden visa, on the other hand, is accessible solely through the acquisition of a property valued at over 500,000 euros ($550,000). The visa enables expats to live and work in Spain after they establish residency in the country.
Fading Overseas Buyers
The trend to buy abroad coincides with reduced demand for U.S. real estate among residents and nonresidents alike. High mortgage rates and saturated markets are the primary drivers causing the domestic real estate market to look bleak. The strong dollar has also discouraged international buyers from purchasing houses in the U.S.
Between April last year and March, approximately 84,600 homes were purchased by international buyers. This marks the smallest figure since the National Association of Realtors began monitoring such transactions in 2009, signifying a decrease of 14% compared to the preceding year.
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