International buyers head for the Texas coast
By Kevin Brass | Published: January 10, 2008

AUSTIN, Texas: On Mustang Island off the coast of Texas, touted as the "last frontier" in the state's coastal real estate, developers of a waterfront project called Cinnamon Shores expect to sell more than 15 percent of the houses to international buyers.

"The irony is we didn't expect to have any when we first looked at the deal," said Jeff Lamkin, chief executive of the Atlanta-based Sea Oats Group, the project's developer.

Cinnamon Shores, a 250-home "new urbanism" development, is one of several new projects along the Gulf Coast stretching south from Houston, where there is little evidence of the problems gripping the U.S. housing industry. Values are up in many areas and investor money continues to flow to waterfront projects.

The upbeat mood is due, in part, to international buyers, who are bypassing traditional markets like Florida, New York and California to invest in the Lone Star State. "I think it's keeping the market alive," said Richard Miranda, a broker associate with Keller Williams Realty in Houston. "These people are buying."

According to a recent study by the National Association of Realtors, 10 percent of the international buyers in the United States last year bought in Texas. Only Florida and California - with 26 and 16 percent - accounted for more international buyers.

While the growth of international activity in the U.S. market has been well-documented, the study provided the first specific data that the phenomenon goes far beyond bargain-hunting Brits buying Florida condos.

According to the data, Arizona and its desert golf courses accounted for 6 percent of international sales, compared with only 4 percent in New York, followed closely by Colorado with 3 percent. While 33 percent of the buyers were from Europe, 24 percent came from Asia and 16 percent were from Latin America.

"I always had the feeling that this was going on, but I didn't have the hard facts to fall back on," said Manfred Chemek, chief executive of Manhelm International, a real estate consulting firm based in Colorado.

The increase in international buyers is welcome news for the industry, which continues to suffer from the effects of the sub-prime mortgage meltdown. The National Association of Realtors predicts that the final number of existing homes sold in 2007 will be 8.6 percent below 2006 levels.

Home prices also are plummeting, especially in former boom areas like California and Florida, where some communities have seen values drop 25 percent in the past year. In 2007, the median U.S. house price decreased for the first time since 1964, and it is expected to fall 9.7 percent in 2008, according to Global Insight, a U.S.-based research firm.

But that is good news for international buyers. "Prices are going to become more attractive, both because of the dollar and falling housing prices," said Pat Newport, an economist with Global Insight. The coast of Texas, including vacation spots like South Padre Island and Galveston, is seen as a bargain spot compared with other areas. The median price in Houston, the fifth largest American city, is $155,000 compared with $385,000 in the Miami-Fort Lauderdale area, according to statistics from the Realtors' group.

"We didn't have the big blow up, the bubble," said Jim Gaines, research economist with the Real Estate Center at Texas A&M University. While many states saw declines in 2007, housing prices in Texas surged almost 7 percent in the second quarter, according to federal statistics.

Although it is hard to quantify the number of international buyers in the Houston area, Gaines estimates that they account for 5 to 10 percent of the market. "For some segments, like high-end condos, it might be close to 20 percent," he said. According to the association's study, Mexico accounted for the most buyers from a single country - 13 percent of all buyers - and a third of those Mexican buyers bought in Texas.

On South Padre Island, Mike Masso, a partner in Coastal Properties GMAC Real Estate, a property agency, says he believes that affluent buyers from Mexico represent more than 40 percent of transactions, in terms of dollar value. His company is opening an office in Monterrey, Mexico, to help woo more Mexican buyers. "It seems like every week I'm working with a different group from Mexico trying to track down developable land," Masso said. Many are like Enrique Castilla, a banker in Monterrey, who views the United States as a safe investment. At first he bought a condo on South Padre as a vacation getaway for his family, but recently he has helped form partnerships to buy land on the island to build condominiums. "They feel they will be protected with the dollar," Castilla said of his partners.

Industry executives say they also are seeing more buyers from other parts of the world. "Part of our new marketing strategy is to seek both Middle East and European buyers," said Robin Parsley, president of Endeavour Holdings, which is developing a 30-story condo tower on the waterfront south of Houston.

"There's definitely a market there we want to capture," Parsley said.