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International Real Estate for Local Markets. Overview Conducting business in global marketplace –Examine different cultures needs and expectations Modify.

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Presentation on theme: "International Real Estate for Local Markets. Overview Conducting business in global marketplace –Examine different cultures needs and expectations Modify."— Presentation transcript:

1 International Real Estate for Local Markets

2 Overview Conducting business in global marketplace –Examine different cultures needs and expectations Modify marketing and selling practices –Attract and service ethnic, immigrant and international clients Develop/expand networking opportunities Create an inclusive business plan

3 Introductions Name Local market International experience Diversity Experience & Training Do you have a business plan

4 Globalization Chapter 1

5 Objectives Identify causes of economic globalization List factors promoting globalization Recognize impact of globalization Identify effects of globalization on the practice of real estate

6 Definition Economic globalization is the movement by countries, companies, organizations and people toward a single market environment

7 Factors Promoting Globalization Unrestricted Boundaries –Relaxed restrictions on importing and exporting –Formation of global economic communities –Relaxed restriction on capital flow across national boundaries Round-the-Clock Financial Markets –Major stock exchanges trade 24 hours a day –Ties financial markets closely together

8 Factors Promoting Globalization New Alliances and Agreements Agreements between countries lead to interdependence of economies Promote facilitation of capital flow Agreements include –Trade –Sharing technologies and workforces –Reduced barriers to provide incentives –Equalize exposure of domestic and foreign investors

9 Factors Promoting Globalization Economic Specialization –Production and export of specific products and services –Creates economic efficiencies and benefits –Develops dependence on other countries Commodities not produced at home Oil exporting countries import manufactured products

10 Factors Promoting Globalization Floating Currency Exchange Rates Global economic conditions influence currency exchange rates Ties economies of nations in determining international buying power World Band and International Monetary Fund –Large role in promoting global economy –Provide loans, drawing rights and funding

11 Factors Promoting Globalization Increased demand –Population growth –Dependence on international trade to meet demands Spread of Free Market Philosophy –Encouraged private ownership –Facilitated integration of closed economies into Western economic system –Promoted international investment

12 Factors Promoting Globalization Natural Events –Direct impact on availability and price –Trade with or aid from other countries provides opportunities for international trade Dependence on Foreign Capital –International sources to fund growth and development

13 Factors Promoting Globalization Capital Accumulation –Groups accumulating capital look beyond their borders for places to invest –Emerging markets are primary targets Communication and Computer Technologies –Advances have contributed significantly –Communication is instantaneous –Geographic distance is irrelevant

14 Factors Promoting Globalization Non governmental Organization –United Nations Problem solver Mediator Reduced ability of nations to act in vacuums –Trade and professional organizations Look beyond own borders for: –Opportunities –Ideas –Partners and talent

15 Impacts of Globalization Countries capitalize on their strengths Specialization in production and export Global interdependence Economic strength defined in: –Trade balances –Currency exchange differentials –Productivity Adapt or lose global competitiveness

16 Effects on Real Estate Business Global investors: –Enter and leave various international markets –Create business opportunities –Seek investments –Expect real estate professionals to have knowledge about: World markets Economies International business transaction

17 Key Point Review Major factors promoting globalization –Unrestricted boundaries for capital flow –Increased free market trade International economic factors have become part of our lives Continued population growth will influence and affect our lives Internationalization will increase real estate opportunities

18 Review Question One key factor behind globalization is: Reinstatement of the gold standard Huge increase of regulations on capital flow Development of round-the-clock financial markets Elimination of floating currency exchange rates

19 Review Question One effect of globalization on real estate investment is: Investors look for real estate investment in other countries Local banks have tighter liquidity requirements Constant increase in price of commercial properties Elimination of negative vacancy trends in major markets

20 Discussion Questions 1.What implications of a global market are apparent in your real estate practice? 2.What innovations, technological or otherwise could keep real estate brokerage practices in step with globalization?

21 Capital Flow Chapter 2

22 Objectives Describe historical precedents for the use of foreign capital Identify theories of capital flow Describe how capital flows in global market Identify influences on capital flow

23 Historical Perspective Ancient Rome invested in regional economies Middle Ages banks developed long-term lending to finance widespread projects The New World was funded by British, French, Spanish and Dutch Europe still invests in American industries

24 Historical Perspective World wars depleted capital and deterred foreign investment New international monetary system –Since WWII –Based on international agreements –Promote growth of world trade Cooperation and loans Elimination of exchange controls Stabilization of exchange rates

25 Capital Flow Fosters growth and development Developing countries use foreign investors Foreign investment increases revenue through taxes Increased revenue provides services and employment Cash flow to developed economies offer better interest rate and tax treatments

26 Capital Flow What Flows? Why? When? Where? How Much?

27 Theories of Capital Flow

28 Influences on Capital Flow: State of The Economy Balance of payments GDP Political events Inflation rate Cost of living Currency value Interest rates Consumption Savings Liquidity Business cycles External debt

29 National Resources Economic specialization –Specialized capabilities –Export abundant resources/import scare ones Supply and demand –Gap between domestic demand and foreign supply Labor supply –Wages –Availability –Skill and education

30 Opportunities to Invest Available avenues for investing –Financial instruments –Money market instruments –Domestic real estate –Foreign real estate –Foreign Direct Investment opportunities More choices = more opportunities

31 Trade Export and import volume –Balance of trade –Determines flow of capital Restrictions and regulations –Tariffs, taxes, quotas, prohibitions –Restrict cash flow and investment Uniform standards –Modern methods and quality control –Ensure universal marketability

32 Today’s Global Market Markets and transactions are larger Changes occur rapidly and universally Information readily available Sophisticated financial instruments Tax treaties more prevalent Money managers diversify in international markets

33 International Financial Markets Capital MarketMoney Market ProductsGovernment notes and bonds Corporate bonds Common stock Mortgages U.S. Treasury bills Federal Reserve deposits Negotiable certificates of deposit Commercial paper BorrowersBusinesses Investors Governments Finance companies Commercial banks LendersPersonal savings accounts Pension funds REITs Mutual funds Commercial banks Foreign banks Government Financial intermediaries

34 Review Question The difference between capital markets and money markets is: The type of collateral used Equity versus debt interest The length of maturity The level of risk involved

35 Review Question International capital flow is: A very recent phenomenon. An American banking practice. A market aspect since ancient times. The fiscal policy of “liberal” Western governments.

36 Key Point Review Foreign capital necessary to growth and development of all countries Capital flows through exchange of financial instruments Three capital flow theories –Bargain Rate –Loss Avoidance –Market Linkage Forces also influence real estate

37 Discussion Questions 1.What are the possible dangers of relying on foreign capital to finance domestic real estate? 2.Do the benefits outweigh the risks? 3.Why is capital flow important to you as a real estate professional?

38 Currency Issues Chapter 3

39 Objectives Define currency and factors affecting value Describe flow of money in an international real estate transaction Identify influences on exchange rates –Economic –Regulatory Describe exchange rate fluctuations on real estate transactions

40 What is Currency? Medium of exchange Symbol of buying power Physical measure of value

41 Currency Value Factors Gross Domestic Product (GDP) Gross National Product (GNP) Inflation Money Supply –M1, M2, M3 Monetary Policy Fiscal Policy

42 Exchange of Currency Bank Draft Bill of Exchange Wire Transfer

43 Rate Fluctuation Influences Balance of trade between countries Balance of payments between countries Exchange rate policies Government actions

44 Balance of Trade and Payments Trade Balances Investment Rates Balance of Payments Gross National ProductInflation Economic Strength Exchange rates

45 When U.S. Pays in Dollars Bank Draft Decreases –Supply of foreign currency in U.S. banks –Banks may not meet foreign currency demand –Takes more dollars to buy foreign currency Bill of Exchange Increases –Supply of dollars in foreign banks –Takes fewer units of foreign currency to purchase dollars

46 Exchange Rate Policies Stable Rate of Exchange Floating Rate of Exchange Floating Managed Exchange Rate

47 Government Actions Tariffs –Duty or tax Non-tariff –Subsidies –Discriminatory standards Spending reductions –Decrease in government spending abroad –Monetary and fiscal policies

48 Effect of Exchange Rates Impact of exchange rates is significant Currency value is part of transaction value Value may appreciate relative to local market Value of domestic currency may depreciate relative to international exchange Appreciation and depreciation may negate one another

49 Timeline

50 Effects of Exchange Rate Expectations may be based on exchange rate –Change at different points during transaction –Effect long and short value of real estate May impact value of currency –Weakening of economy –Tightening of money supply –Decline in value of currency itself

51 Effects of Exchange Rate Price –Buyer may need more or less cash at closing Predicted and Actual Return –Investor return may be eroded or enhanced Income –Income and expenses may be higher or lower Taxes may vary due to exchange rate Financing costs may be higher

52 Converting Currency, Area, Price Information given in local measures –Currency units per square meter per month –Dollars per square foot per year Must convert between domestic and foreign Helps clients understand costs

53 C-A-T Formula Step 1: Convert the Currency Use most current exchange rate –Xe.com real time exchange rate site

54 Convert the Area Convert square feet to square meters Convert square meters to square feet

55 Convert the Time Period When price is quoted per month: –Multiply currency amount by 12 for price/year. When price is quoted annually: –Divide by 12 for price/month.

56 Key Point Review Value of currency is in buying power Exchange rates reflect currency strength –May fluctuate over time Currency value, exchange rate, investment and capital flow are interrelated Currency trends should be monitored for threats and opportunities

57 Review Question When the U.S. imports foreign goods and pays for them in dollars, there is a tendency for the value of the dollar to fall because: Foreign banks own more dollars than their own currency. The flow of foreign currency into the U.S. increases. U.S. banks have more dollars than before. U.S. banks have more foreign currency than before.

58 Review Question Since investors typically want to conserve their principal, and earn a predictable and reasonable return, they do not like governments that: Change often and experience ideological extremes. Promote free trade. Stimulate capital formation. Obstruct monopolistic practices.

59 Investment Trends Chapter 4

60 Objectives Explain principal foreign investment patterns in the USA Identify preferences of major investors in international real estate Identify major investment targets and economic conditions that attract investors

61 Foreign Investment in USA 2005 foreign investment in USA –$829.2 billion $768.2 billion in 2002 –Second largest on record –Foreign acquisitions more than doubled from 2002 Increased purchases of U.S. Treasury securities Major USA investors include UK, Netherlands, Germany, Japan, and Israel

62 Total Investment Real Estate Investment Total Investment Real Estate Investment Total Investment Real Estate Investment All figures are in millions of U.S. dollars All Countries 1,395,15936,702.71,520,72938,9641,635,29141,066 Canada 95,7073,153125,5032,859144,0332,818 Europe 1,001,23716,7361,066,90819,2041,143,61420,618 Latin America 84,1346,12087,2596,25482,5306,194 Africa 2, , , Middle East 7,1171,0497, N/A Asia/Pacific 204,7089,394231,5009,216252,584N/A Areas Investing in USA

63 FDI Outlook Optimism based on: –Accelerated global GDP growth –Low interest rates –Increased domestic investment and industrial output Competition for FDI will increase –Generous investment incentives –Increased liberalization of financial requirements

64 FDI Outlook Most attractive regions for FDI –Asia, Central and Eastern Europe Primary sources of FDI –USA, UK, France, Germany, Japan Overall positive trend counterbalanced by: –Oil price volatility, new protectionism, terrorism Positive factors outweigh negative factors FDI modest compared to

65 Foreign investment in US Real Estate Qualities attracting investors –Political stability –Economic stability –Investment-grade properties –No discrimination against foreign investment

66 FDI in USA Real Estate In Billions of U.S. Dollars

67 Comparison of FDI in USA Real Estate Canada12%7% Germany15%16% Netherlands12%4% United Kingdom13%11% Caribbean9%7% Japan30%13% Australia9%13%

68 Foreign Buyer Preferences Long-term perspective High-equity positions Acceptable, predictable returns Quality products in desirable locations Detailed research Specialized advisors Familiar markets Greater risk

69 Global Investment Outlook Weakened U.S. dollar Rising importance of China Oil prices Moderate growth for U.S. and Europe Deceleration of growth in Japan Growth tapered off in 2005 Central banks are reducing or removing policies that fuel rapid growth

70 FDI Potential Generate employment Raise productivity Transfer skills and technology Enhance exports Contribute to long-term development of developing countries

71 Investment Climates

72 United States of America Serious issues facing economy –Higher interest rates expected Currency depreciation High energy costs Trade deficit Increasing national debt War in Iraq Investors may diversity into non-U.S. assets

73 China Economy expected to slow only slightly –Tighter credit controls –Softer global markets Major player in global market –Increased consumer demand Making enormous investments Third largest market for imports Economy is export-oriented

74 Europe Expect modest growth –Weak consumer spending –Slowdown in exports –Minimal job creation –High unemployment –Increased oil prices Euro appreciation against dollar –Wages cut, hours increased, lower salary grid

75 Japan and East Asia 2 nd most technologically powerful economy 3 rd largest economy in world Decline expected due to global slowdown Japan changing economic picture Multiple factors influencing forecast –Development of overseas economies –Demand for IT-related products –Financial system issues

76 Japan and East Asia Southeast Asia has economic challenges –Widespread poverty –60% of 3.3 billion people live on less than USD$2 per day –Difficult to build financial institutions –High risks –Limited resources –Social and national problems –Globalization and internal liberalization

77 Japan and East Asia Economic issues –Trade –Competition policies Social issues –Migrant workforce –Remittance systems Natural events--Tsunami of 2004 –Loss of lives, untold devastation –Take years to recover

78 Australia Average economic growth is 3.3% Financial services generated 8% of GDP Liberal foreign investment policy –Stable and resilient economy –Steady increase in FDI –Regulatory system is transparent and efficient –Taxes and restrictions are limited or non- existent

79 Mexico and Latin America 5 th largest producer of crude oil –Oil-related earnings = 35% government revenue –Oil reserves exceed billion bbl/day Committed to economic and financial reforms Projected growth 4.8% through 2006 China key export target for Latin America Latin America investment target for China Long-term challenges for Latin America

80 South America Expected solid pace of growth Good commodity prices and low interest rates Single digit inflation Investment and consumption have strengthened allowing for growth Energy producing countries will do well Energy importing countries will be challenged

81 Africa Sub-Saharan Africa growing at 3-5% Inflation decreasing in most countries Oil producing countries faring well Challenges to business include: –Lack of quality information –Fluctuating currencies –Bureaucratic red tape –Nepotism, graft and corruption –Monopolies

82 Middle East GDP rose to 4.7 in 2004, expect 4+ in 2006 Oil prices –Above $30/barrel accumulate large surpluses –High incomes boost domestic demand Reforms needed in investment sector –Economic structures –Institution promoting balanced growth –Higher employment –Reduced poverty

83 Middle East Political and social conditions –Investors perceive high risks in region –War in Iraq Stimulated demand for logistics and related functions Boosted economies in region –Suez Canal revenues have skyrocketed –Tourism in Egypt has increased 34%

84 Obtaining Current Information World Trade Centers Association U.S. Chamber of Commerce CIPS Network –Membership directory –Cooperating associations –Face-to-face business at NAR Annual Convention –Quarterly newsletters –Customized research from NAR library

85 Traits of Foreign Buyers 1. Risk of overgeneralization 2. Investment patterns

86 Asian Buyers Prefer markets where minimal cultural differences intersect with economic opportunity Feel most at home with other Asians

87 Japan Favor offshore real estate Need portfolio diversification –Limited opportunities in Japan –Very high land costs in Japan –High short-term gains tax USA market viable investment –Cheap land –Relative liquidity of market –Better tax incentives

88 Hong Kong Reversion to China influenced investments Much investment is immigration-related Planning and holding horizons in 5 yr. range Offshore investment expected to flourish –Assume more risk to realize higher gain –Investment range is $1.5 to $5 million –More amenable to absentee ownership

89 European Buyers Diversification significant motivation Most European real estate is inherited High-quality properties, good locations Reliable returns not trophies Secondary markets and older properties Seek income first, then appreciation High equity positions

90 United Kingdom Strong cash-position investors Heavy emphasis on exchange rate and return on capital Establish local representation Leases in England –Rent levels reviewed and raised apart from contract –Do not attach importance to letter of lease –Look at financial strength of tenant

91 France, Sweden, Norway France French now invest without involvement of French banking system Increased institutional investment Sweden & Norway Foreign investment increasing: –Loosened regulations –Heavy domestic tax rates

92 Germany Open and close-ended funds Fewer opportunities in Germany –Higher savings rate slows economy –Cap rates of 5% to 6% –Seek higher returns outside the country –Tax incentive to invest in East Germany has expired –Investors look to new markets

93 Future Global Investment Trends Globalization is a reality Capital flow depends on easing barriers and opening borders Europe presents a large market Measures to ease global business –Single currency –Uniform standards –Comparable pricing –Easier financing

94 Future Global Investment Trends Asia will be a leader in size, GDP and purchasing power Asian economies starving for cash –Looking for foreign investment Latin and South America have large industrial privatization measures –Need FDI for infrastructures USA stability, easy access, favorable tax laws will continue to attract investment

95 Key Point Review FDI significant source of real estate investment funds in United States Understand customs, business cycles and political events before making an investment Real estate professional should be familiar with traits and preferences of foreign investors

96 Which of the following generalizations about Asian investors is most accurate? Most comfortable investing where there is a significant Asian presence. Invest in areas unexplored by other investors. Rigidly follow leadership of big Japanese corporations. Exhibit no general investment patterns at all. Review Question

97 Global investment is facilitated by: Open borders. Favorable tax laws. Interdependency of nations. All of the above.

98 U.S. Regulations on Inbound Investments Chapter 5

99 Objectives Identify federal non-tax laws, restrictions, ownership laws pertaining to U.S. real estate Explain how Patriot Act affects real estate professionals Explain resident status definitions Identify forms for U.S. tax purposes Comply with federal tax reporting and withholding responsibilitieis

100 Philosophy of United States Open, free-market philosophy Federal regulation focuses on: –Reporting –Registration –Tax compliance Some state and local laws apply Open-market attractive to international clients

101 Non-Tax Laws & Regulations Restrictions relating to national security –Federal lands –U.S. territories –Sensitive business sectors –Investments by enemies or hostile countries Environment –Flood control –Environmental impact –Wetlands preservation

102 Ownership Laws Different types of legal structures Legal structures to hold U.S. real property Considerations on how to take title Limited ownership provides reduced liability Do not pay income tax at corporate level Shields members from direct liability

103 Non-Tax Reporting Requirements Report acquisition to BEA within 45 days of closing Agricultural land Non-personal, non-agricultural land Bank Secrecy Act –Amounts greater than $10,000 –Includes payments by travelers’ checks –Reported no matter who is involved in transaction

104 The Patriot Act Financial institution requirements –Customer ID and anti-money laundering programs –Enable verification and record maintenance –Purpose: Identify specially designated nationals or blocked persons Brokers should not service persons on list Property managers at risk if tenants on list

105 Professional Liability “Any professional whose practice involves transactions with foreigners or foreign properties should be aware of whom he or she is dealing with.” David Lereah, NAR’s chief economist and senior vice-president who oversees regulatory and industry relations

106 Federal Tax Laws All transactions in U.S. real property are considered sourced in U.S. Primary consideration is whether person is a resident or nonresident alien Tax treatment is the same for: –U.S. citizens –U.S. corporations –Resident aliens Consult tax and legal experts for details

107 Resident vs. Nonresident Status U.S. taxes citizens and residents on worldwide income U.S. CitizenTaxed on worldwide income; Credits for foreign taxes paid Resident Alien Taxed on worldwide income; Credits for foreign taxes paid Nonresident Alien Taxed only on U.S.-sourced income

108 Resident Status for U.S. Taxes Physical Presence Test –Present in the U.S. for 183 days or more during calendar year Substantial Presence Test –Present in U.S. for more than 30 but less than 183 days in current calendar year –Present for weighted average of 183 days over a 3 year period Current year and two preceding years

109 Tax on Nonresident Alien Income Tax imposed on all taxable income connected with trade or business Income not connected with U.S. trade or business is exempt in certain circumstances Passive income subject to withholding of 30% of gross income –Withheld, reported and transmitted within 10 days Tax treaties affect tax rate Capital gains on sale of U.S. real property taxable regardless of time in U.S.

110 FIRPTA Gains, profits and income from sale of U.S. real property are U.S. sourced income FIRPTA requires: –Withholding and remitting 10% of purchase price, not 10% of gain, to IRS Nonresident seller may apply for certificate authorizing lower withholding Reports filed by settlement agent

111 Rules for Sale by Foreign Person Buyer of real estate from foreign person must file: –Form 8288: Withholding Tax Return –Form 8288A: Seller’s receipt for withholding tax –Both forms require an ITIN –A nonresident alien Social Security number is their ITIN –May apply for ITIN on IRS Form W-7

112 Interstate Land Sales Full Disclosure Act Second home market opportunities Developers local, out of state or country State and federal second-home market laws

113 State Laws Requirement to register Requirements apply to developers’ agents State laws vary Applies only to agent directly representing a developer for sale of multiple units Rationale: Jurisdiction over developers marketing property in their state

114 Registration Requirements Extensive Costly to developer May require annual renewal

115 Right of Rescission If sale in violation of law Right can last for years after closing May require bonds be posted May include specific contract and escrow requirements

116 Federal Laws Subdivisions developers must register with HUD Provide property report before contract is signed Less risk for real estate professionals Applies to offers of 100 or more lots State information to be published by NAR at by summer 2007www.Realtor.org

117 Deficit Reduction Act (DEFRA) Withhold, report, transmit 10% of amount realized within 10 days of transfer Buyer directly responsible for withholding Withhold agent subject to civil penalties Exemptions include: –Purchase price does not exceed $300,000 –Property is a personal residence –Affidavit certifying seller is not a foreign person

118 Reporting and Withholding Responsibilities Withhold tax amount when property sold 10% of sales price withheld for gains tax Excess tax returned to seller Passive income has withholding rate of 30% of gross income Tax treaties may modify amount of tax Property managers must withhold tax on monthly payment received on rentals and forwarded to foreign property owner

119 Tax Treaties Purpose: prevent double taxation Treaties may provide tax reduction opportunities Treaties are always changing Refer to Appendix for list of treaties

120 State and Local Regulations Some states restrict or regulate foreign land investment Many state have laws similar to FIRPTA –Foreign owner may not be familiar with laws –Refer to experts such as tax specialists Refer to Appendix for outline of restrictions

121 Key Point Review U.S. is an open and unrestricted market Federal regulations relate to reporting Federal tax treatment depends on resident or nonresident status Income and gain received by nonresident aliens are subject to taxation and withholding tax Buyers responsible for paying withholding tax Closing agents withhold, report and transmit tax

122 Review Question A nonresident alien. A resident alien. A U.S. citizen. Completely tax-exempt. For tax purposes, a foreign national who was physically present in the U.S. for 183 days or more during the year would be considered:

123 Review Question Must be a Certified Public Accountant (CPA). Must be an attorney, liable for withholding. May be the real estate professional. Is only liable for civil penalties, never criminal penalties. The withholding agent in a transaction involving a foreign party:

124 Local Market Demographics Chapter 6

125 Objectives Research and interpret data to assess cultural attributes in local markets Identify opportunities to expand practice by finding local and international clients Identify and develop needed services for underserved populations in local markets Examine local demographic trends

126 Demographics U.S. Census Bureau –Hispanic community fastest growing –Hispanic home ownership 46% in 2004 –By 2030, 25% of population will be Hispanic or Asian NAR research –1 st time homebuyers Accounted for 4 out of ten home purchases More likely to speak a language other than English

127 Expanding Immigrant Locations U.S. immigrants averaging 1 million/year 65% located in 10 metropolitan areas (’90’s) Immigration growth no longer regional –Hispanic population increased 100% in Las Vegas in 10 years ( ) –Asian population increases since 1997 Las Vegas—93% Atlanta—70%

128 Analyzing Demographics Population and Households Income Age Occupation Ethnicity Housing Comparisons Local Economics Sources of Data Using Demographic Data

129 Key Point Review National and local demographic data –Provides a picture of housing and investing trends –Help identify buyers/sellers in local markets –Determine changes and opportunities –Do NOT use to target specific groups

130 Review Question According to Harvard University’s housing projection research, what percentage of home owners will be immigrants in the coming decades: Approximately 2/3 Approximately 1/4 Approximately 1/2 Approximately 1/10

131 Review Question Under the Fair Housing Act, it is unlawful to use demographic data to: Set rental rates for apartment communities Identify local or regional economic trends Assess opportunities or threats to a local area Target specific groups for the purpose of discrimination

132 Cultural Issues and Practices Chapter 7

133 Objectives Access and analyze information Explain importance of relationship-building Examine stereotypes, assumptions, biases Recognize how inclusion increases business and reduces risk Offer appropriate services Develop cultural sensitivity guidelines Recognize benefits of embracing diverse cultures

134 National Statistics

135 Cultural Variation Observations Self and space Time and time consciousness Relationships Mental process and learning Work habits and practices Communication and language Beliefs and values Living habits and practices

136 Cultural Summaries Asia Japan Europe North America Latin America Middle East and North Africa

137 Assumptions, Stereotypes, Biases Generalizations Assumptions, Stereotypes and Myths –Not safe to say “all” or “no” –Invites others to stereotype you –Both parties make inappropriate assumptions –Pay attention to the individual Biases –Form preferences –Biases can become negative and harmful

138 Cultural Stereotype Categories Self-Control Outlook on Life Racial Attitudes Honesty/Reliability Character Time Orientation Social Classes Religion Orientation to Nature Group Objectives Work Ethic Talents and Abilities

139 Buying and Selling Attitudes Colors Numbers Location and Orientation Offers and Contracts Negotiating Styles Marketing and Advertising

140 Mexican-Heritage Home Ownership Study in Los Angeles, Houston, Atlanta Hispanic population youngest ethnic minority in U.S. Mexicans are 67% of Hispanic population Obstacles to home ownership –Live a cash-only existence –Difficult to establish credit history –Speak little English –Poorly informed about home-buying process

141 High level of trust in real estate professionals Job insecurity with long term debt Believe their stay in U.S. not permanent Many buy in neighborhood where they live Prefer neighborhoods with low crime rates, good schools, proximity to work and rising home values 3.6 million more Hispanic households in 2010 Mexican-Heritage Home Ownership

142 Asian-American Home Ownership Very diverse, underserved market Barriers of Asian-American homebuyers –Language/cultural –Lack of knowledge of buying process –Unverifiable income –Lack of credit –Lack of trust

143 Cross-Cultural Listening Skills 1.Pay attention to person as well as message 2.Do not assume you know what they want 3.Emphasize and create rapport 4.Share meaning 5.Request information in a way that does not bias or inhibit the response

144 Business Norms and Etiquette Use good manners Project positive attitudes Adjust to high or low context communication Observe basic multicultural norms and etiquette

145 Behaviors to Avoid Hands in pockets First names Personal questions Asking about family Crossing legs Soles of feet/shoe Personal space Initiating physical contact Impatience

146 Nonverbal Red Flags ►Re-adjusting distance ►Averting eye contact ►Inappropriate laughing ►Covering face ►Silence ►Impatient

147 Key Point Review Common life activities vary among cultures Cultural understanding imperative in international business Culture and tradition influence buying and selling attitudes Active listening skills are essential Research cultures where you conduct business

148 Review Question Some culturally-based beliefs, traditions and practices that may influence buying attitudes include: Citizenship, city or local development plans, and access to public housing. Amount of needed financing, size of building or home, and urban or rural location. Kitchen & bathroom amenities, architectural style. Colors, numbers, and location and orientation of the site and/or building.

149 Review Question A behavior that may be offensive to others from different cultures is: Clapping your hands. Showing the soles of your shoes or feet. Distributing business cards. Wearing a tie and business suit.

150 Cross-Cultural Relationships Chapter 8

151 Objectives Explain cultural and social elements that build relationships with clients Discuss high and low context cultures Identify key cultural areas influencing business and personal relationships Examine cultural behaviors Adapt business procedures to accommodate foreign clients

152 Building Relationships Critical component of business opportunities Relationships are key to successful transactions No relationship, no business Understand and accept other cultures –Recognize critical elements defining culture –Deeply rooted stereotypes or prejudices

153 Language Barrier and facilitator for interaction Beneficial to speak a second language Provides access to cultural undertones Colloquial speech may have different meaning Fluent speaker may edit documents Translation software has limitations

154 Religion Fundamental role in creating cultural identity and behavioral norms Read about religion to facilitate interaction with social standards and behaviors Religious tradition prescribes certain behavior

155 Social Structure Dictates respect, speech, modes of contact, roles and relationships May be fluid and change over time May be clear and fixed –Status such as family origin, birthright or religion –May be assigned a role without knowing it –Inappropriate action may lose business

156 Historical Predispositions Broadly influences everyday life Political, social, religious beliefs Decision-making Placing trust in others Disclosing information Eye contact

157 Cultural Interaction Guidelines Preparation Communication Business Practices Role Behavior

158 Key Point Review Cultural differences have huge impact on relationships and business practices Learning about and adapting to other cultures prerequisite to international opportunities Real estate professional must know how to develop a relationship before business is possible

159 Review Question One factor that makes international selling practices different from domestic practices is: In most countries, a transaction requires a prior relationship. International clients do not care about product benefits. Decisions tend to be made without negotiation. Foreign investors refuse to be qualified.

160 Transaction Expectations Chapter 9

161 Objectives Identify parts of international transaction process that may differ from domestic List adaptations to facilitate transactions Clarify roles of professionals in an international transaction Identify client expectations and needs

162 Client Expectations of Roles Broad spectrum of ways to complete transactions Professional roles may vary Experienced clients will have understanding and knowledge New clients approach investment in terms of cultural experiences and expectations

163 Role Contrasts Who is the client? The Real Estate Professional Legal Counsel Professional Advisors Translators Title and Escrow Agents

164 The Transaction Process Clearing title encumbrances Real property interests Use restrictions and loss of ownership Does it have to be in writing? And even if it is in writing…

165 The Client Knows Best Know when to talk and when to keep quiet Inform rather than persuade Clients want to make up their own minds Do not appear aggressive

166 Decision-Making Styles Consensus, committee, levels of hierarchy Accept and adapt to client’s practices Be sure decisions are understood Follow-up verbal exchange with written confirmation or summary – may be acceptable –Card or letter is better

167 Negotiating Styles Vary as much as decision-making styles Some groups: –Seek favorable results for everyone involved –Focus on personal objectives Experience, insight, good listening skills Do not state departure plans

168 Funds and Tax Laws Where is client’s money for transaction Be sure money arrives in time Banks and clients can be at fault for delays Identify money channels to ensure closing Get funds inside domestic borders before closing date Use international tax attorney for latest requirements and laws

169 Key Point Review International business practices and customs vary Clients have different expectations Clients have different methods of selling, negotiating and decision-making Real estate professional must be informed regarding various methods Educate and inform clients

170 Review Question The U.S. real estate professional should be prepared for some resistance on the part of an overseas client regarding the use of: A counteroffer A notary An advisor An exclusive listing agreement

171 Review Question One aspect of U.S. real estate law and practice, which differs from the laws and practices of most other countries is: The concept of down payments Title and escrow procedures Loan application fees Government disclosure requirements

172 Ethics and Equal Service Chapter 10

173 Objectives Identify discriminatory acts under federal fair housing laws Apply One America Principles and philosophy of inclusion Recognize illegal practices Apply Equal Professional Service Model

174 Build on Fair Housing Initiate a diversity-oriented practice Fair housing laws establish minimal standards Understand fair housing laws –Expected of all real estate licensees –Embodied in Code of Ethics Fair housing laws provide full range of housing options Equal Professional Service Model is solid basis for keeping promise of these laws

175 Discriminatory Acts Refusing to sell, rent, negotiate housing Discriminating in terms, conditions, privileges, services or facilities Falsely denying housing is available Failing to provide loan information Imposing different terms or conditions Discriminating the property appraisal

176 Steering Steering is an illegal activity Making choices or assumptions for buyer Attempts to guide buyer in certain direction Editorializing about areas client should or should not consider Making housing unavailable because of race, color, national origin, religion, familial status, sex or handicap

177 Advertising Advertising is subject to Fair Housing Act State laws may also apply Selective use of publications Human models Geographic advertisements Equal opportunity slogans and logos –Use logo in all advertising, on business cards –Incorporate in Office Policies

178 Predatory Lending Practices or loan terms that: –Deliberately deceive borrowers –Strip home ownership equity –Induce repeated refinancing with higher points and fees NAR identifies predatory lending practices: –Diminished personal credit standing –Violation of federal consumer protection statues and regulations

179 Celebrate Differences Opportunity Embrace Shared Values Responsibility One America Principles One America Principles Diverse Community

180 Philosophy of Inclusion Part of One America Principles Accept individuals from diverse cultures Unconditional respect for all individuals Positive regard for all individuals –Right to be different and appreciate differences –Extends to all individuals Cross-cultural relationships, social and professional Celebrate differences without imperative to change

181 NAR’s Code of Ethics REALTORS® –History of supporting letter and spirit of fair housing laws –Pledge to conduct business in accordance with tenets and spirit of Code of Ethics Article 10 outlines commitment to equal opportunity in housing

182 1. Do I use systematic procedures? 2. Do I have objective information? 4. Have I offered a variety of choices? Ye s NoNo NoNo NoNo 3. Has my customer set the limits? Y es NoNo Equal Professional Service Model

183 Systematic Procedures Obtaining and Using Objective Information Letting the Customer Set the Limits Offering a Variety of Choices Equal Professional Service Model

184 Fair Housing Case Study

185 “You Be the Judge”

186 Personal Application

187 Key Point Review Fair Housing foundation documents –REALTOR® Fair Housing Declaration –One America Principles –NAR’s Code of Ethics Standard policies and practices –Include sensitivity to diversity –Easier to provide professional service to everyone

188 Review Question Steering is a practice used by some real estate professionals to: Match buyers and sellers in a transaction. Guide a client in a certain direction. Eliminate potential buyers who are not seriously considering a real estate purchase. Select appropriate advertising and marketing practices.

189 Review Question Fair Housing laws: Provide strict rules about how to run a real estate business. Only apply to rental properties in major metro areas. Help ensure that everyone has full access to the housing market with no discriminatory barriers. May be used to qualify foreign buyers, and eliminate possible violations of the Patriot Act.

190 Professional Goals Chapter 11

191 Objectives Determine personal attitudes to improve, change or adopt Create professional goals Examine immigration data Translate professional goal into specific action statements

192 Professional Goals Opportunities Global resources Loyal clients mean repeat business Income opportunities Larger audience for listed properties Excitement and personal growth

193 Initiating International Practice Commitment Time Money Education Networking Adaptation Personal Self-Assessment

194 Market Assessment Evaluate market potential for international –Property type, size, variety and availability –Existing foreign investment –Local economic and demographic trends –Accessibility and transportation –Market size and name recognition –Real estate market conditions –Proximity to university and other resources

195 Goals and Strategies Local demographic trends –U.S. Government Census Bureau –Federal statistics (www.fedstats.gov)www.fedstats.gov –Local statistics –Global residential property news and research –CCIM Institute (www.ccim.com)www.ccim.com Sample local market data

196 Goals Services and customers Reaching the local community Reaching international markets Professional development Company goals

197 Specializing Guidelines Personal background Professional background Real estate expertise Local market opportunities Competitors

198 Succeeding in International Traits and Attitudes –Patience –Resourcefulness –Initiative –Interest in cultures –Sensitivity –Listening and communication skills –Fond of travel Business Practices –Success commitment –Clear explanations –Respect clients’ wishes –Networking skills –Loyalty to foreign clients –Respect others business practices –Plan and organize –Clear objectives

199 Key Point Review Excellent opportunities and resources for international real estate practice Success requires commitment of time, energy and money Assess personal biases, strengths and weaknesses Translate professional goals into specific actions

200 Review Question An attractive feature of international real estate practice is that it: Is an easy-entry business Offers significant repeat-business potential Does not require as much expertise as domestic practice Requires little specialization or preparation

201 Business Plans: Create and Launch Chapter 12

202 Objectives Identify variables influencing business plan Develop strategies for initiating or expanding international practice Create specific actions to launch business plan

203 Formulate a Business Plan Components –Mission and goals –Strategies to attain goals –Action plans to implement strategies Identify variables –People –Resources –services Inclusive practice –Multicultural service philosophy –Diversity Strategic plans Practices Staffing –Culturally friendly community presence

204 People, Resources, Services Identify all people involved in practice Supply customer service that exceeds customer expectations Resources to provide equal service Consider range of services to provide

205 Business Plan Strategies Increase resources for international transactions Add or expand service to international clients Network locally for international contacts Network locally for international contacts abroad

206 Launching Business Plan No value if not implemented Planned actions to achieve goals Action plan –Schedule of specific actions –Addresses one objective or goal –Who is responsible for specific action –Identify start and stop dates

207 Sample Action Plan Advertising in the Local Market

208 Evaluation Were objectives reached –How well did you do –What did you learn Did project satisfy goals How close to schedule and budget Recommendations for future projects What would you do differently

209 Key Point Review Business plans organize variables –All efforts aimed at achieving specific goals Multiple strategies may be used Action plans provide: –Direction –Focus –Accountability

210 Marketing and Selling Chapter 13

211 Objectives Apply awareness and sensitivity of cultural differences to marketing and selling Use practices that make clients feel comfortable, informed and valued Identify professional skills needed for a successful international practice

212 Market Profiles Associated with commercial or investment properties Summarizes economic, demographic and financial aspect of national and international Inform and educate prospective buyers and clients

213 International Property Profile Comprehensive and detailed –Local, state, regional, national economic summaries –Secondary market properties should focus on advantages over primary markets –Ability to buy and sell should be completely detailed –State, region, city, chamber of commerce or convention bureau may have information

214 Property Profile Comprehensive portrait of specific property Tangible physical features and amenities Financial and economic aspects Tenant and management data Surrounding area and competing properties Reputation and prestige Prepare copy of profile for client

215 International Property Profile Comprehensive property information Competitive standing with properties outside immediate market Present physical dimensions in measurements familiar to client Potential client information –Do they speak the language –Have they visited before –Is this their first investment in country/market

216 Target Buyer Profile Location, size and investment expectations Historical buying patterns Preferred property type Motivation to buy Effective targeting requires knowledge of market

217 Marketing Plans Reach all potential clients Target buyer profiles Budgeting and resource allocation Identify key selling and advertising themes Selling plan Promotion plan and budget Internet listings and other networks

218 Multicultural Marketing Recognizes diverse market base Learn about traditions and beliefs Do not assume all minorities are alike Use appropriate native language media Understand cultural nuances in dress, communication, family values Educate your audience Financial budget for revenues and expenses –Costs run 15%-30% of revenue

219 Selling Plan Details direct and indirect contacts –Calls to be made –Support materials to be produced –General activity schedule Primary and secondary categories

220 Promoting Property Internationally Takes more time Promote company, not just property Advertise in financial pages of targeted cities Build relationships Greater travel and entertainment expenses Have brochures and print materials reviewed by someone familiar with culture

221 Advertising and Fair Housing Laws Fair Housing Laws apply Edit ads for hidden or double meanings Focus on features and benefits Place ads to make information available to all potential clients State and local laws may apply

222 Prospecting and Making Contact Direct prospecting: –Personal contact –Intermediaries/introductions –Trade shows/conventions Indirect prospecting: –Business network

223 Qualifying Overseas Clients Uncover prospect’s objectives Ongoing learning process Define relationship BEFORE qualifying Address investment requirements Identify investment timeline Identify client’s decision-making structure Does investment capability correspond to stated intentions

224 Qualifying Unsolicited Parties Client’s background and reputation Previous purchases Amount of money involved Location of money to be used in transaction When will decisions be made Who makes the decisions Talking to other real estate professionals

225 Presenting Emphasize yourself and your company –Personal business practices –Professional ethics –International experience –Range of services –Team of professionals who assist you –Overseas offices and affiliations

226 Offering, Negotiating & Closing Know and conform to local customs Maintain client’s confidence in value and fairness of transaction Emphasize ideas and values you share Exercise discretion and respect Pay attention to timely transmittal of funds Comply with federal withholding, reporting and transmittal laws

227 Transnational Referral System International Consortium of Real Estate Associations (ICREA) –Support an international referral system –Legal agreement between consenting agents –Standardized referral procedures –Binding dispute resolution process –Easier to make and receive referrals –6-hour online Transnational Referral Certification course

228 Networking Organize a network Maintain a network Cultivate your network –Earn your CIPS designation –Explore different business methods –Check credentials/references for potential clients –Cultural and social environment of contact –Ask questions, explain transaction details

229 Key Point Review Match property and market profiles to target buyer profile Profiles aid selling themes and educate prospective clients Building relationships is key to prospecting Qualifying uncovers desires and motivations Emphasize reputation & international experience

230 Review Question An international network is best defined as: An international membership organization for cooperating brokers. A rolodex-card system of international listings. A custom-made business and communication channel used to generate prospective international clients. addresses obtained from the Internet.

231 Review Question In international prospecting, you have to: Use intermediaries to establish first contact. Make cold calls. Entertain prospects. Accomplish all business at the initial meeting.


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