Steinbauer, Andreas (2006) An innovative study of private German real estate investments in U.S. residential real estate with reference to the cultural dimension. (MPhil thesis), Kingston University, .

Abstract

This dissertation focuses on the organisation of private German residential real estate investments in the United States, in particular on the economic and cultural dimensions and surroundings, the decision-making process and the nature of the investors themselves. The work begins with a theoretical section, examining the various underlying economic and legal conditions and the options available for structuring foreign real estate investment in the United States, and an analysis of the main forms. Starting with a general valid description of the term "real estate" and its markets under consideration of the specialities, the American real estate market is analyzed from the supply and demand side. It is examined that the individual characteristics of real estate as an investment in the U.S. in connection with sociocultural and intercultural behaviours with the sum of all acquisitions and sales, lead to specific market developments. A concrete analysis of demand and offer-supply determinants of the American market for residential real estate follows. On the one hand, a sufficiently precise image of the present situation and future developments is created. On the other hand, the substantial structure differences between American and German markets and cultures are shown. Knowledge of these is of crucial importance for potential investors, since the derivable economic implications open new evaluation perspectives. The internationalisation and globalisation of real estate services together with the current innovations are examined from several points of views in order to benefit from the high global market impact in the U.S .. An empirical survey with more than 100 investors provides information about and reasons of the structure of German investors' motives. The motives, which are transferred into the investment aims, are subject to a critieal consideration. A more detailed analysis of the statistics can provide fundamental information: who the investors are, where they invest and what types of real estate they acquire. Afterwards the author also answers the question about the why, with a particularly accomplished survey and the processing of numerous relevant contributions. The main aim of the survey is the search of determinants, which are decisive regarding the investment behaviour of private German investors in U.S. residential real estate. A further goal of the survey, is to obtain the opinions and attitudes towards the U.S. real estate investment. The motives for investment investigated thereby, give an idea of the expectations, German investors have with their commitment to U.S. real estate. Finally, the feasibility of these expectations has to be examined. Taking cultural, political and currency-specific risks into consideration, particularly the questions arise whether American real estate investment offers an effective protection against inflation, how high the attainable net yields are and which diversification effects investors can obtain thereby. Answering these questions, alternative investment forms should be included in order to ensure comparability. Whilst bearing in mind the limitations of the survey technique, the results represent confirmation of the risk-averse nature of German private investors. Furthermore, the paper examines whether literature sustains the structure of the investors' motives and the different risks involved and how foreign investment in U.S. real estate can be successfully implemented with the greatest possible limitation of the risks. In the current situation of the global economy, engaging in cross-border residential real estate investments depends on several factors in which the national culture of the investors is involved. The knowledge of the language and the consciousness ofthe cultural system are the main determinants of cultural sensitivity and the keys to mutual international communication. To that extent also the cultural power of empathy of the German investor is a necessary condition for success. Consequently, this dissertation discusses the cultural differences between the German and American culture by applying different concepts of culture and showing significant differences in that important field of research. Ideally, foreign investors should adopt a third culture based on expanded cross-cultural understanding. The cultural aspects are discussed on an individual basis regarding the economic environment for foreign residential real estate investments. The cultural barriers for foreign investors are shown in respect to the criteria of certain behaviors and differences. Research shows that the typical German culture can not easily be transferred to the U.S .. The findings indicate that residential real estate investments in the U.S. are influenced by the culture of the investors' origin. Even if other factors influence residential real estate investments, private German investors have to keep in mind that cultural differences can hinder success. In this dissertation it could be proven on the basis of a representative survey and historical data, that no other examined type of investment (1) better fulfilled the security function of the purchasing power, (2) showed a higher profitability and a smaller risk and (3) represented a more suitable way for the diversification. On the other hand, these opportunities must be juxtaposed with considerable investment risks. The economic, cultural, social and political significance of foreign residential real estate investments is enormous. On the basis of the examination it was also determined that the surprisingly dominant expectations of German investors who want to immunize themselves against international crisis by investing in U.S. real estate are unrealistic. This was clearly shown to be true after the September 11th terrorist attacks on the World Trade Center in New York.

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