Is now a good time to invest in Manhattan, New York residential property?
Posted by Wei Min Tan on May 19, 2021
The Manhattan, New York residential property market is recovering from Covid and currently it’s a seller’s market. This is driven by low mortgage rates, lowered pricing from the pandemic, pent up demand from 2020 and overall optimism from the Covid vaccines.
The bottom of the Covid market was between May to July 2020. Since then, pending sales, referring to contracts in pipeline waiting to close, has been increasing every week. We are experiencing the ninth week with 300 contracts signed per week, a record level. Shortage of supply is an issue. Q1’2021 sales volume was up 29 percent while months of supply is at 8.8 months, back to the 20-year historical average.
Covid impact on Manhattan property
The Manhattan market was weak from mid 2017 through 2019. This is despite a strong economy (both U.S. and New York City) and record low unemployment rates. In Q1’2020 it first appeared that we were starting the recovery as evidenced by an increase in sales volume (before March 15, 2020). Then after March 15, 2020, New York City was hit by COVID 19 at unprecedented levels and the property market came to a standstill.
The real estate market was locked down from mid March 2020 to end of June 2020. As the market reopened end of June 2020, uncertainty was at the highest. Clients didn’t know how long the recovery would take, retailers closed down, restaurants could not reopen for indoor dining.
The rental market was hit even harder. Because of work-from-home policies at companies, renters didn’t renew leases and moved out of Manhattan. New Yorkers had a once-in-a-lifetime opportunity to work from anywhere they want while saving on Manhattan rents. Market rents dropped 25 percent, inventory shot up 3x and vacancy rate shot up 5x.
I am often asked, during pandemic and currently, whether now is a good time to invest in Manhattan property. There is no short answer, let’s understand the overall context a bit more.
Why was the Manhattan market soft from 2017 to 2019?
Manhattan property experienced a slowdown from mid 2017 through 2019, 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 2017 to 2019 was a down cycle. If 2009/2010 can be a gauge, it previously was down one year (2009) and remained flat another year (2010). Manhattan experienced a dip between 2017 and 2019, and due to COVID 19, 2020 saw the dip extending as the market and entire U.S. economy came to a standstill. The original 2017 to 2019 slowdown started with the market’s reaction to the decreased tax deductibility on primary residence property. And then it was 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).
Fear and reopening
Early 2020 saw sales volume increasing but then Covid hit NYC. The market came to a standstill from mid March through end of June 2020. Looking back, May to July 2020 was the bottom of the Manhattan market. My clients who bought during that time made the right move and got the best deals. But this is hindsight. The uncertainty then was how long was the Covid impact going to last, and whether it was the end of cities and dense living.
The media talked about the death of big cities. People started moving out of Manhattan and to the suburbs. The suburbs saw a surge in the real estate market starting around July 2020.
After the market reopened in July 2020, the real estate industry slowly resumed amid a lot of new protocols. eg Covid forms, very limited showings. Urbandigs, a Manhattan data analytics firm, started tracking weekly activity including the charts below.
Manhattan property market comes back
Post Covid shutdown, we found that pending sales, referring to contracts in pipeline waiting to close, has been increasing weekly since July 2020. Weekly contracts signed kept going up and supply peaked in October 2020 and kept coming down until around recently when it started ticking back up a bit. The current market is a seller’s market, driven by:
1) Low mortgage rates
2) Buyers wanting in on the remainder of the pandemic’s deals
3) Optimism from the Covid vaccines
Chart below: Market Pulse shows we are in a seller’s market and the bottom was in July 2020.
Deal example: Client’s condo at 111 Murray, opposite Goldman Sachs HQ (the green building). Booked at pre-construction, prices up about 20 percent.
Weimin’s article, Investing in Tribeca property.
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 Q1, 2021.
Average price $2.41m (-6.7% vs prior year)
Price per square foot $1,714 (-10.9%)
Transactions 1,086 (+6.5%)
Months of supply 9.6 months (+1.1%)
Sales volume in Q1’2021 increased 20 percent compared to Q4 and 6.5 percent compared to prior year. While prices are still lower than pre-pandemic, contracts are being signed every day as buyers lock in historical low mortgage rates.
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
During the pandemic, I represented international clients in negotiating the best terms in recent memory. Recently the increase in foreign demand increased even further. Manhattan and London are deemed the world’s top two cities for asset diversification and price stability. These are the world’s only two Alpha++ cities.
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
When do we return to normal
Normalcy will come when people return to the office. Working from home is not productive and quite distractive. When the whole family is working or attending school from home, it is hard to focus. Human beings are social animals. We need to interact with others as a basic need. Looking at zoom video conferences cannot fulfill that need.
By the end of this year, people will be back at work, that is when things will be fully back to normal. Manhattan needs office people in shirts and suits walking around. And of course, the tourists, who have started coming back.
Weimin’s article, What does a luxury apartment in Manhattan mean?
Is now a good time to invest in Manhattan property?
We are in the beginning of the next up cycle. From history, up cycles usually last about 7 years. Sales volume is very high and sellers have the advantage because there is a lot more demand than supply. The bottom is over, it was last year.
Good news is that prices are still lower than pre-pandemic. There are still good buys and negotiability. It’s just getting less and less. In a year or two from now, prices would be even higher because property prices go up with inflation. Goldman Sachs expects 2021 GDP growth at 6.6 percent driven by reopening of businesses, pent up consumer demand and the fiscal package boosting consumer and infrastructure spending. According to GS, the economy has shown tremendous resilience during Covid and we are at the nascent stages of the next economic expansion.
Yes, it’s a good time to buy Manhattan property now. We are at the beginning of the next up wave.
Read about How to buy new launch property in Manhattan
Deal example: Represented multiple buyers at 130 William, FiDi’s new development with very low carrying costs and full amenities. Proximity to the Fulton Street subway station and high quality finishes such as marble bathroom, solid wood doors make this a good buy.
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 May 19, 2021