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Is the challenging real estate market in Manhattan a buying opportunity?

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Overall
Manhattan real estate had its worst first quarter since the financial crisis, capping the longest losing streak for sales in over 30 years. Total sales fell 3 percent in the first quarter. That marked the sixth straight quarter of declines, which is the longest downturn in three decades. The drop stems from an oversupply of high-end apartments, a lack of foreign buyers and the new federal tax law that has hit real estate in high-tax states.

Condo segment
The Manhattan real estate market appears to have some challenges but, as usual, it depends on which market segment that you are looking at. For foreigners, the most important segment to follow is the condo apartment segment. Condos (or condominiums) are the most popular type of apartments for foreign buyers as these units do not have restrictions from building Boards, are easy to purchase and can be rented out easily. This is very different from coop apartments (or cooperative apartments) which almost always have restrictive Boards in place that do not allow foreigners to purchase the unit and do not allow subletting the apartments.
Median price of resale condos fell 4 percent year-over-year. Median price per square foot declined as well, falling by 4 percent annually. The median price per square food for a resale condo is now $1,395 (or $15,000 per square meter). The supply of condos has increased with 15% - there is now 12.3 months of supply of condos.

New development segment
Sales of new developments has been slowing significantly over the last year. There were 157 new development sales in the first quarter of 2019, a drop of 39.4 percent year over year to the lowest point in 4.5 years, the lowest that has ever been recorded since the first quarter of 2003. Furthermore, the supply in new development is high: the supply of newly built condos jumped 56 percent over last year, to a 19-month supply. As such, buyers who are looking to buy a brand new condo unit definitely have a lot of options to choose from. It is interesting to note however that the median price per square foot of a new development unit has increased with 7% over the last 12 months. The median price per square foot is now $2,085 (or $22,440 per square meter)

Shall you buy a condo in Manhattan now?
It is clear that the Manhattan real estate market has some challenges so should you invest in Manhattan now? Nobody can predict the future but you may consider a few factors:

1. Interest rates remain low (and may drop even further)
For sure, most local Americans are using mortgages to buy property. Being able to finance the purchase of a property in Manhattan at low interest rates is a positive thing. With a Fed that potentially will start reducing rates, it may become more interesting for local Americans to start investing even more heavily into real estate as they would be able to do so at lower interest rates. Of course, if more local Americans start buying, property prices in Manhattan will continue to increase.

2. US economy remains strong
While the media is often focused on the trade wars, the US unemployment rate is at a record low, the economy is doing well and the stock market is still strong. Overall, these are positive signs supporting a healthy real estate market. As long the economy remains strong and the jobs are there, the demand of local Americans will remain and the Manhattan market will continue to get better.

3. Large supply of new development buildings
It should be noted that there is a large supply of new condos that has been built in Manhattan. These new condo buildings are mostly luxury building and focused on upscale buyers (3mm USD and more). As such, prices have come down in this segment and it may be a good time for any cash rich investor to start looking for deals in this segment.

4. Manhattan is a diverse economy
Manhattan is a huge economy that has become very diverse – there are certainly major financial institutions but over the last 10 years, huge tech firms such as Google and Facebook have built campuses in Manhattan as well. Law firms, marketing agencies, culture and arts and tourism are major contributors to the economy as well. Lastly, there are a number of top schools located in Manhattan: Columbia University, Cornell University, New York University and several others have major campuses in the city.
Why is this important? It is crucial for job creation and it forms a major buffer if something would happen to any particular segment of the economy.

5. What happens when a recession hits the US ?
There is of course a risk that a recession will hit the US at some point. The question is how bad the recession will be and what the impact would be on the Manhattan real estate market. Assuming that the US will face a recession that is similar to the crisis in 2009 (which was the worst since the 1930s) then Manhattan real estate prices probably would drop on average 15% (which certain upscale segments dropping 35%). The drop would last 1 year and then prices would recover.
However, it is probably unlikely that a recession similar to 2009 would occur anytime soon; especially with President Trump who is eager to use any mean possible to keep the economy steaming ahead. As such, investors who are planning to invest in Manhattan real estate in 2019 probably have some downward protection by realizing that any recession would cause Manhattan prices to drop less than 15%, and the drop would not last longer than 1 year.

Nobody can predict the future but it is probably fair to say that the Big Apple will remain a formidable city in the long term.

The price of a typical Manhattan apartment just fell below $1 million

In the latest sign that the Manhattan real estate market is softening, the typical price of an apartment in Manhattan fell below $1 million during the final stretch of 2018 for the first time in three years.

Read the details here:

https://markets.businessinsider.com/news/stocks/manhattan-apartment-medi...

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New York is top city for the most wealthy families

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The Knight Frank City Wealth Index ranks the world's cities by their appeal to wealthy families. The reports indicates that New York is the top choice, followed by London and San Francisco.

The ranking is based on four main factors: wealth, investment, lifestyle and future.

How foreign investors launder their money in New York real estate

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One of the characteristics of the modern age is the greed of the richest people. They are working to earn as much as possible and at the same time they are trying to protect their cash from tax as much as possible as well. One of the ways of doing this is by moving their wealth into a jurisdictions that is tax friendly and, as a result, with little tax implications on their income. Another way is by using real estate, especially overseas real estate in good markets such as Manhattan. Investing in a condo in Manhattan has become a favored way for many rich families to deal with tax.

Between 2008 and 2014, roughly 30% of condos in Manhattan were sold either to foreign investors or LLCs (which are typically hiding a foreign investor).
Indeed, U.S. real estate especially has certain advantages over small tax havens. Places like Bermuda or Seychelles are tiny and would be defenseless if they ever came under U.N. sanctions. New York real estate, in addition to being a handy wealth storage mechanism that provides a place to land anytime one feels like visiting New York City, is free from such threats — and reaps the gains of any increases in the market, which have been very good in New York over many years.
Of course, some of the foreign investors and associated LLCs are laundering illegal money. The money laundering scheme of Paul Manafort — President Trump's former campaign chairman — involved New York real estate. The New York Times spent significant effort looking into a few luxury Manhattan residential buildings, and found several extremely shady and occasionally illegal foreign investors.

So what might be done? First, money laundering laws have to be enforced agressively. Second, cities like New York could consider banning foreign shell companies from purchasing residential property.

Investing in New York real estate does make a lot of sense but it should be done properly and without investors trying to launder away criminal money.

Source: Theweek, November 2017

Condo prices at Trump Tower in New York are dropping to their lowest value since the Great Recession

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The prices of condo units at New York City's Trump Tower have dropped significantly since President Trump started his campaign in 2015.
The drop is so severe that prices in Trump Tower have hit their lowest value since the Great Recession.

The average price per square foot in Trump Tower is $2,100, which is 13% less than in 2016 and 23% from the year before. Real estate analysts are pointing to multiple factors that could provide an explanation for these lower prices namely the security measures that were put in place in and around Trump Tower, a general dislike of Trump, or an overall deceleration in the luxury condo market in the area. However, Trump Tower's condo prices are decreasing more rapidly than other condo units in Midtown Manhattan. Excluding new developments, the average price per square foot in the area has actually seen a slight increase.

Trump Tower is not the only Trump building that is facing challenges. The nearby Trump International Hotel and Tower has seen a 24% decrease in its average price per square foot since 2015. Furthermore, The Independent reported that the Trump Organization is worth just one tenth of the value it previously claimed.
Read full details here.

http://www.businessinsider.com/new-york-trump-tower-condo-prices-droppin...

Source: Business Insider, November 2017

Manhattan real estate market – a mixed story

Manhattan apartment sales were the strongest in two years, although property prices at the top end continued to face pressure. The median sales price in Manhattan increased with 8% over the last 12 months but the average sales price fell approx. 2%. The decline in average sales price can be explained due to the significant drop in prices at the luxury market segments. It is also interesting to note that discounts are more common, and bidding wars have become less common.

The major reason for the decline in average property price in Manhattan is the sharp reduction in price for luxury and new construction developments. Prices for new construction condos are down sharply over the last 12 months – namely 13% drop in median price per square foot or 19% drop in average price per square foot for new construction developments! Based on the real estate agency Corcoran, new development prices however are still up significantly over the last 5 years so it remains to be seen whether the decline this quarter is just an outlier.

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For foreign investors, it is more important to look at the resale condo market. Foreign buyers always buy condo apartments (and not coop apartments as those apartments are impossible to purchase due to approvals required from Boards and they have very restrictive leasing options). Median prices and average price of second hand condos have increased with 6% and 5% respectively over the last 12 months. The median price of a condo apartment in Manhattan is now approximately $1.4 million. The graph shows that the median prices and price per square foot for condos in Manhattan has steadily moved up over the last many years.

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As a conclusion, we are observing a mixed story in the Manhattan real estate market. Certainly there is a continued downward pressure on the luxury and new construction development market segment. At the same time, the second hand condo market keeps on moving upwards steadily.

Source: CNBC and real estate brokerage reports, October 2017

New York real estate: record high again; growth varies; rental in doldrums

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New York has seen another strong quarter.

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Where sees the strongest growth in New York?
Harlem, Downtown Manhattan, and Brooklyn were Q2’s strongest markets for new development sales.

Now let’s look at each of these areas:

Manhattan
Let’s look at how sales have fared in the second quarter of the year. And despite the fact that some indicators show a cooling sales market—there are fewer apartments hitting the market, and the ones that are there tend to sit longer without finding buyers—prices are still hitting new heights.
The number of sales in Manhattan also increased substantially—more than 3,000 were recorded for this quarter.
The big trends are “high sales, record prices, re-sale inventory beginning to slip, and still plenty of bidding wars.”
The median sales price for all new development increased 22.8 percent to $3,306,656.

With average price “luxury”, buyers are more concentrated in “non-luxury” homes
We found that 47.2 percent of condo sales were between $1 million and $3 million—so not in the “luxury” echelon of the market.

Cooling off signs
But still, there are some signs of cooling off—at least at the upper-upper echelon of the market, where the median sale price increased only 3.5 percent to $6,836,269. Listing discounts began rising in the last quarter, which means that luxury sellers are becoming more realistic with pricing. That also led to a drop in the number of luxury apartments on the market—a trend we’ve seen for some time now—as aspirationally-priced listings were allowed to expire.
Rental market in Manhattan has some challenges
The rental market remains soft. So far this summer, the pace at which new leases are signed has not appreciably picked up. It can also be noted that continued closings on condos, bought for investment, ultimately crowd an already glutted, oversupplied rental market. Tenants are still able to negotiate better deals for themselves as landlords acknowledge that a known tenant at a slightly lower rent beats no tenant at all..

Brooklyn
It looks like the cost of buying in Brooklyn is finally getting as terrifyingly high as Manhattan. In the second quarter of 2017, the borough set some serious price records. And this might give pause to the New Yorkers who still remember when Brooklyn was remotely affordable.
The number of sales jumping 50.7 percent and the listing inventory falling 15.5.
The median sales price for a condo was $900,000; for a co-op, it was $423,000; and for single- to three-family homes, it was $1,046,440. The luxury median sales price jumped 32.6 percent to $2,520,168.
The Brooklyn market still has room to grow.
New development taking more share
"This quarter was the season of the new development" for Brooklyn. New development sales jump 127 percent over the same time last year; the median price for those properties rose 25 percent year-over-year to $971,000, as the average price increased 42 percent to $1.37 million. And while both the inventory and closed sales for new developments is on the rise, it’s actually decreasing for co-ops and resale condos.

Queens
Oh yeah, Queens prices are setting a record high, too. The luxury median sales price increased to $1.2 million.
Queens also saw its fastest paced second quarter in a dozen years, with the number of sales surging 47 percent.

Brooklyn real estate offers more than a greencard for Chinese buyers

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If you ask a New Yorker where to find the most authentic Chinese food, they might suggest dim sum at the Nom Wah Tea Parlor, or try something at the Peking Duck House. Both restaurants are located in Chinatown, a densely populated Lower Manhattan neighborhourhood.
But increasingly, if you ask a New Yorker where to find the most authentic Chinese food, they might tell you to go to Brooklyn. Devotees of hot pot, a fondue-esque specialty from China's Fujian Province, are lining up at eateries in Sunset Park, Brooklyn's first Chinatown. This middle-class neighborhood now claims the highest concentration of Chinese immigrants in the borough.

Since the Great Recession, snapping up prime real estate in coastal American cities, has become an increasingly popular activity with China's wealthy. In 2014, for the first time, the Chinese bought more Manhattan apartments than did the Russians, according to Reuters. The strength of the U.S. dollar compared to the fragile yuan is making China's middle class a major force in the Brooklyn real estate market. The existing cultural infrastructure of its Chinatowns aside, the potential profit margin of owning property in Brooklyn's up-and-coming areas is hard to beat.

Read the full article on CNBC.
http://www.cnbc.com/2017/03/21/china-is-beating-america-again-buying-up-...

Mixed signals in the Manhattan real estate market

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Based on the latest reports from the major real estate brokerage firms in Manhattan, the real estate market in Manhattan is sending mixed signals. This might be an indication that the property market has reached its top and now going into a stabilization phase.
From a positive side, the Manhattan housing market built momentum in the first quarter of 2017 as the overall number of resale transactions, including both co-ops and condos, increased 7.7 percent year-over-year. Another positive element is that the average sale price, including both new and resale condos and co-ops, rose 2.6 percent to $2.1 million.
However, there are some negative factors in the Manhattan real estate market at the moment. While the average sale price did increase slightly, the median sale price, dropped 3.3% over the last 12 months. Also, it takes longer to sell units in Manhattan. Homes spent an average of 90 days on the market, up from 78 days recorded the same time last year.
While the market overall is sending mixed signals, it is important to look at the condo market in particular as condos are the type of apartments that foreigners will typically purchase. Condos have the advantage of being less restrictive around the sale and renting out of the units. This is a major advantage for foreigners who often do not have the necessary credit scores and documentation to buy in a coop building and also need the flexibility to rent out their unit.
This condo sub market seems to be neutral to slightly positive. Most brokerage firms indicate that the average sale price for condos increased approximately 4%.The median price for condos remained flat over the last 12 months.
Lastly, there is good and bad news for the new development projects in Manhattan. Both average and median prices recording year-over-year increases. The average price rose 23 percent to $4.8 million and the median price increased 4.9 percent to $2.8 million. However, the sales of new development projects dropped more than 25% from last year. Furthermore, units in new development projects spent an average of 241 days on the market — nearly twice as long as last year.
The outlook for the rest of the year is unclear, but sales are unlikely to surge over 2016 — especially if interest rates continue to rise.

Source: www.eastwestproperty.com Q1 reports of Corcoran and Elliman

Here is one area of New York City real estate that’s slowing down

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Co-ops are not as popular in New York City as they were decades ago. It used to be that 85% of apartments in New York City were co-ops. But not any longer. People in New York aren’t as willing to pay their higher monthly fees — or deal with their persnickety boards.
There are two types of apartments in New York City that a buyer should be aware of, namely cooperative apartments (or called “co-ops”) and condominiums (or called condos). These are basically two types of legal structures for apartment buildings. The main differences are that co-ops usually have many more restrictions when someone wants to buy or rent an apartment. Often co-ops have many requirements that need to be satisfied before a potential buyer or potential tenant is able to buy or rent an apartment. The Board in a co-op building often requires interviews with the potential buyer or renter to determine whether the person is suitable enough to live in the building. Furthermore, co-op buildings are very restrictive in a landlord to rent out their unit, for example many co-op buildings request that the owner can only rent out their unit for 2 years and then the owner needs to move back into their apartment. This is of course a major challenge for investors who are looking to buy an apartment in Manhattan but never plan to live there.

Residents of co-ops aren’t typical homeowners: instead of the individual or family owning the apartment they inhabit, they own shares of a larger corporation — which in most cases, is the building. With it comes a lower price tag but higher monthly payments than other living arrangements and headaches like bigger maintenance fees, and more rules on what residents can and can’t do in their homes and on the property.
Although co-ops still dominate the housing supply in the city, they’re losing out to condominiums, which are units that usually cost more than co-ops initially but come with lower maintenance fees and have fewer rules, experts said. Co-ops make up 75% of New York City’s housing market, while 25% are condos, compared with 30 years ago, when co-ops made up 85% and condos 15%, according to Investopedia.

The co-op market apparently seems to slow down. The co-op inventory in New York City has become so stagnant that the number of unsold properties grew 20% higher in the fourth quarter of 2016 compared with the same time the year before, and asking prices are being cut 10% to 15%, The Wall Street Journal reported.

Source: Marketwatch, January 2017

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