United States: Overview

RENTAL YIELDS

Last Updated: Jun 22, 2008

New York yields poor at 4.3%

Yields in Upper Manhattan average at 4.6%. Gross rental income on apartments does not go beyond 5%, except for units with 60 sq. m that generate a yield of 5.97%, way higher than other apartment sizes. Lower Manhattan yields aren't good, either. In fact, they are even lower than in Upper Manhattan with an average of 4%. Apartments with 60 sq. m still earn more at 5.05%.

Rental earnings have slightly increased with the fall of property prices. Upper Manhattan apartments sell for an average of US$19,138 per sq. m, with a 60-sq. m unit selling at US$12,049 per sq. m. With an average of US$16,965 per sq. m, apartments in Lower Manhattan are cheaper than in Upper Manhattan. The difference in price can be seen in bigger apartments.

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TAXES AND COSTS

Last Updated: Dec 03, 2008

The complicated U.S. tax system

Rental Income: Rental income is categorized as either Effectively Connected Income, wherein it is taxed at the progressive federal tax rates, or Fixed Determinable Annual Periodical income, wherein it is taxed at 30% withheld by the tenant. States also levy income taxes at varying rates.

Capital Gains: Capital gains tax for properties held for more than a year is 5%; otherwise the tax is 15%.

Inheritance: Federal estate tax is progressive with rates at 18% to 45% and an exemption of up to US$2,000,000. A Generation-Skipping Transfer Tax is also being levied on transfers to beneficiaries who are more than one generation younger than the transferor.

Residents: Resident foreigners, like U.S. citizens, are taxed on their worldwide income.

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BUYING GUIDE

Last Updated: Jul 05, 2007

U.S. buying costs range from low to moderate

Roundtrip transaction cost is around 7.6% to 11.2%. Significant costs include the 6% real estate broker's fee and real estate transfer tax, at 0.1% to 2% of property value. Total costs for legal fees, title search and insurance, and registration fees range from 1.5% to 2.2%.

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LANDLORD AND TENANT

Last Updated: Feb 06, 2008

U.S. housing law is pro-tenant

Strong anti-discrimination laws make the US slightly pro-tenant.

Rent Control: There are subtle rent control laws in 5 states; however their laws also have provisions to give landlords a fair return of investment.

Tenant Security: It is advisable for landlords to write a report citing all the allowable reasons when declining a prospective tenant. Tenants can also charge landlords with intentional infliction of emotional distress to fend off eviction.

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ECONOMIC GROWTH

Last Updated: Dec 02, 2008

The US is in recession

The United States of America has the world’s largest economy, the third biggest population (304 million in May 2008), one of the highest GDP per capita (US$45,594 in 2007), and the third largest land area.

However as a result of the subprime mortgage crisis, the US is in recession since December 2007, according to the National Bureau of Economic Research (NBER).

NBER defines recession as a significant decline in economic activity which lasts for more than a few months. It looks at GDP, gross domestic income, real personal income, employment, real manufacturing sales, wholesale-retail sales and factory output to determine the state of the economy.

"The committee determined that the decline in economic activity in 2008 met the standard for a recession," NBER said. "All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion," it added.

The housing market has crashed, the stock market has tumbled, financial institutions have collapsed, and the auto industry is likely to go bankrupt.

In 2008, GDP growth is projected to be 1.6%. The economy had already slowed in 2007 to 2% GDP growth, down from 2.8% in 2006. GDP contracted 0.5% during the year to end-Q3 2008.

Inflation is expected to be around 4.2% in 2008, down from 2.9% in 2007, and is expected to stabilize at 1.8% in 2009.

Real private sector wage growth was 5% in 2007, the highest since 2000. Real wages have grown by an average of 3.5% from 2001 to 2006.

The unemployment rate rose risen to 6.5% in October 2008, up from 4.6% in 2007.

Interest rates have been repeatedly cut during 2008:

Despite the interest rate cuts, mortgage rates barely changed.

One year ARMs moved to 5.21% in October 2008, up from 5.5% in December 2006