Benefits and Downside Risks of Buying Manhattan Property
Posted by Wei Min Tan on October 1, 2017
Investors from all over the world have always been buying Manhattan property as a means of diversification. London and New York used to compete for foreign investment. However, since Brexit and the uncertainty of the GBP and property value in London, New York has become the main destination for global investors seeking capital preservation and consistent appreciation.
If you are a successful professional or business owner looking to buy Manhattan property for portfolio diversification and stability, you are amongst the many such individuals who we work with. Welcome to exploring this avenue!
Before taking the leap, here are benefits and risks to consider.
Benefits of owning property in Manhattan
Value Stability: Property prices in Manhattan have stable appreciation. Historically, it ranges from 7 percent to 15 percent per year. This is driven by inflation and demand, the latter comes from population growth and investors wanting a piece of this magnificent island. New college graduates and corporate professionals move here every year. People who live in other boroughs of New York City want to move to Manhattan. Living in Manhattan is a status symbol. Globally the newly rich want to own property in New York, the iconic city with skyscrapers, high finance and fashion. More specifically, “New York” is the island of Manhattan.
Limited Supply: This is an island that has been developed over the past 150 years. Whatever new development is but a very small percentage of total inventory. In a typical U.S. city (which is not an island), developers are constantly expanding the city by building further out of the core. But in Manhattan, there is no more space to build further. Yes, developers can build higher but there are two issues (i) zoning restrictions and (ii) very expensive land prices which means the resulting product has to be priced much higher, which makes it outside of the core price segment.
Owning a condominium is easy: Most property in Manhattan are apartments. Unless you intend to spend $7 million and above to buy a townhouse or mixed-use building, chances are you’d be buying a condominium apartment. With an apartment, you are essentially owning the airspace within the 4 walls of your apartment. There is a lot less headaches because you don’t have things like a roof, boiler, exterior wall to worry about.
Downsides and Risks of owning property in Manhattan
Lengthy eviction process: About 75 percent of Manhattan residents are renters. The court system here is more friendly to tenants than landlords. This means if eviction is necessary, it would take between 6 months to 9 months (vs 1 month in most other cities). Hence, proper screening of tenants is very important.
High entry point: This is a matter of perspective, but a 500 square feet studio apartment starts at $650,000. This means the down payment required is at least $260,000 plus closing costs. It’s capital that is tied up. For $650,000, you could get several houses in Texas or North Carolina.
Higher costs overall: Costs are higher overall in Manhattan compared to other U.S. cities. For example, labor cost is 4X to 5X the cost of material for renovation projects. This has to do with licensure requirements, permits and insurance, approvals, cost of (contractor’s) parking, limited use of elevator which extends renovation time, etc. When buying or renting out, the buyer and tenant have to submit a board package and that has various fees as well. Everything is just more expensive.
That’s the high level summary. If you still want to explore buying in Manhattan, feel free to email and we’d be glad to provide more reasons as to why you should (or should not) buy in Manhattan.