Is now a good time to invest in Manhattan, New York residential property?
Posted by Wei Min Tan on January 5, 2020
The Manhattan, New York residential property market has been weak since mid 2017. This is despite a strong economy (both U.S. and New York City) and record low unemployment rates. Given the uncertainty, clients often ask whether now is a good time to invest in Manhattan property.
Why is the Manhattan market soft?
Manhattan property is experiencing a slowdown, typical with property cycles. Looking at property price data going back to 1999, Manhattan condominium prices were going up from 1999 to 2008, had a dip in 2009 and remained flat in 2010, and then went back up from 2011 to 2017.
The 7-year up cycle ran its course and now we are having a down cycle. If 2009/2010 can be a gauge, it previously was down one year and remained flat another year. Now Manhattan is experiencing a dip again, between 2017 and 2019. The slowdown started with the market’s reaction to the decreased tax deductibility on primary residence property. But now it is driven by (i) increased mansion tax and oversupply in the $5m+ high end segment, (ii) increased inventory, (iii) the typical down cycle after an up cycle (2011-2017).
Why is it a good time? A lot of supply and mortgage rates are at a low, about 100 bps lower than in 2018.
Deal example: Client’s condo at 111 Murray, opposite Goldman Sachs HQ (the green building). Booked at pre-construction, prices up about 20 percent.
How much Manhattan residential condos cost now
Back in 1999, price per sqft was $480. The peak was in 2017 at $2,149. The below are key data points on a Manhattan condominium in Q4, 2019:
Average price $2.64m (-11% vs prior year)
Price per square foot $2,067 (-3.9%)
Transactions 1,019 (-0.1%)
Sales volume in Q4, 2019 was flat to a year ago. Price per square foot was $2,067, down 3.9 percent from a year ago. When compared to the peak of 2017, price per square foot in Q4, 2019 was down about 4 percent.
These declines are significant in a non-speculative market like Manhattan. Property prices go up because of inflation, so it’ll never go to the levels of year 2000 or even year 2009. The same reason the cost of a burger now will not go down to their price in year 2009.
This is because central banks continually print more currency every year hence making each dollar worth less than, say, 10 years ago. Naturally, more dollars are required to buy the same goods (or Manhattan property) now vs 10 years ago because of the concept of inflation.
In 2009, prices came down by about 15 percent. And at end of 2019, prices in Q4 were down by about 4 percent compared to 2017. While prices are still at historical highs, it has to be viewed in the context of cycles and dips, driven by inflation.
Deal example: Client bought and then sold this prewar condo that is one block from the World Trade Center, New York’s largest development.
Why investors globally track Manhattan property prices
Manhattan and London are deemed the world’s top two cities for asset diversification and price stability. These are the only two Alpha++ cities. With London experiencing the challenges of Brexit, Manhattan currently has an edge in terms of attracting investors.
Key reasons high net worth individuals globally invest in Manhattan are:
(1) Asset diversification
(2) Stable price increases
(3) Low credit risk
(4) Tax breaks such as depreciation
How long will this slowdown last?
The property slowdown has been on for about 2 years, from mid 2017 until now. The last downturn in 2009 was also about 2 years. We are seeing more transactions but the major themes are still in play – changes in tax laws, higher inventory, trade war concerns.
Buyers on the fence and sellers not budging on price
It is normal for buyers to want to wait for the “bottom”. But we know that once the bottom is announced, it’s already over. Currently, many buyers are having a wait-and-see attitude. Meanwhile, sellers are not decreasing price substantially either. This has resulted in certain buildings having a lot of inventory on the market, eg one building in the Financial District has 40 units on the market for sale.
The smart new development projects have been pricing according to the market and offering concessions, which never used to happen in a normal market. For example, the developer covers part of the transfer taxes that is otherwise paid by buyer. The most in-demand new development projects are still not negotiating on price or giving concessions.
Our recommendation is that buyers should act now
Our recommendation is that now is the best time to buy a Manhattan residential property. Buyers benefit from the slow overall market which leads to more negotiability. In addition, buyers get to choose among more property options and generally won’t have to compete with other buyers. It’s also a perfect time to negotiate terms like financing contingency, maybe some free furniture and closing dates.
This current slowdown may extend through 2020. Or prices may have reached a bottom and flatten for a year or so. But timing that is impossible. What is within control is capitalizing on a downtrend because prices have already decreased significantly, by Manhattan standards.
What We Do
We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
Notes: This article was updated January 5, 2020