The Property Investment Brief: Detroit, USA

Where next to invest? We profile the world’s top property hotspots, detailing everything an investor needs to know.

The Essentials

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House Prices
Up 21.7% (2017, Zillow)
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Returns
17.3% (2017, ATTOM Data Solutions)
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Demand
1 in 8 enquiries (2017, TheMoveChannel.com)

Where is it?

Detroit is the largest city in the US state of Michigan, and the largest city on the US-Canada border. Its position on strong train and water routes to Chicago and New York, as well as copious industry shops, led to it becoming the hub of America’s automotive industry. With “The Big Three” (Chrysler, Ford, General Motors) all based in the city, it has earned the nickname “Motor City”, which underscores its reputation, popularity and appeal.

Who lives there?

Detroit was once one of the most populous cities in the USA. While that has changed since the financial crisis, though, the city’s smaller population is beginning to growing again, as people move back to the area. Indeed, Detroit is home to 100 Fortune 500 companies, while a gradual rebound in the number of automotive jobs and other factory positions is a promising indicator of improving conditions. Low cost of living and opportunities for entrepreneurs are helping to bring younger people to the city, while billionaire Dan Gilbert’s decision to move companies to the area has helped to reinvigorate its local populace.

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Why invest?

Detroit has consistently been one of the most sought-after US destinations among overseas investors in the last five years. The city’s appeal may come as a surprise to some, given its high-profile declaration of bankruptcy several years ago. Motor City has been slowly steering itself back on track, though. In the last seven years, more than 45,000 car manufacturing jobs have been added in Detroit Metro, more than any other area in the USA. Nonetheless, Motor City’s economy is more diverse than ever, with growing industries including healthcare, IT and aerospace.

Now, Detroit’s GDP is among the 20 fastest growing in the country, with its 12.2 per cent increasing ranking fifth among similar regions, behind Dallas, Seattle, Minneapolis and Pittsburgh.

As for real estate, its inventory of foreclosures has been increasingly bought up by investors over the last 10 years and let out to meet demand for rental accommodation. At the same time, property values have increased, reducing the number of homes underwater and helping local buyers back on to a steadier property ladder. These gradual trends have been fuelled not only by overseas interest but also by development work, as infrastructure works and regeneration have helped to stimulate the economy. With employment also rising, the result has buouyed the housing market, both indirectly and indrectly. Gilbert’s investment, for exmaple, has seen a number of old buildings in downtown Detroit turned into apartments.

As a result, both local and international buyers are driving back to Motor City. In 2016, property sales jumped 14.55 per cent compared to 2015, according to the Detroit Board of Realtors.

Zillow now rates the market as 9/10, indicating “very healthy” conditions. Indeed, prices are rising even faster than sales, with values up 21.7 per cent year-on-year, according to Zillow, and forecast to climb another 4.9 per cent in the coming 12 months.

Rental values have stayed flat, but according to ATTOM, Detroit property still delivers the sixth highest returns in the country (17.3 per cent, compared to the national average of 9 per cent). Strong capital growth means that such returns will not be available forever, although rising values mean that gross returns will still prove profitable – despite price increases, home value still remain before their peak levels recorded in 2009. For now, then, the question is less why one should invest in Detroit real estate, and more why one shouldn’t wait.

Who’s Investing?

Chinese buyers have become increasingly dominant investors in US property in recent years, as the country’s stable economy and strong returns make for an attractive asset. They bought $27.3 billion worth of US real estate in the year to March 2016, according to the National Association of Realtors, spending more than investors from India, Mexico and other countries. While high net worth individuals and institutions invest on a larger scale in projects, though, the affordable price point and hands-off nature of more typical residential investments mean that buyers from the UK, South America, the US, Canada and more are also drawn to the market.

Agents say…

“Anyone that has followed Detroit over the past 7 years would know that it has come from a very dark place and is now going through some major changes… Investors have a very small window of opportunity before the market is out-priced and returns are lowered.”

Mike Moodie, CEO Global Investments Incorporated
 

Find out more:

View properties for sale in Detroit

 
 

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