Is now a good time to invest in Manhattan, New York residential property?

Posted by Wei Min Tan on December 17, 2018

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 is experiencing a correction, typical with property cycles. Looking at 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 2018. The reasons behind this correction are (i) market’s reaction to the decreased tax deductibility on primary residence property, (ii) rising interest rates (iii) uncertainty about the global trade wars, especially with China.

Manhattan condominium historical appreciation

How much Manhattan residential condos cost now

By historical averages (eg price per sqft was $480 in 1999), Manhattan prices are still at historical highs. Here are key data points on a Manhattan condominium:

Average price $2.66m (-2.3% vs prior year)

Price per square foot $1,913 (-5.3%)

Transactions 1,319 (-11.7%)

Sales volume in Q3, 2018 was down 11.7 percent compared to year ago. Price per square foot was $1,913, down 5.3 percent from a year ago. When compared to overall 2017, price per square foot in Q3, 2018 was down 11 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 now in 2018, prices in Q3 were down by about 11 percent compared to 2017 average. While prices are still at historical highs, it has to be viewed in the context of cycles and dips, driven by inflation.

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?

Winter is approaching and this is historically the slowest season for property transactions in a cold weather city like New York. People just don’t feel like going around looking at property when the days get dark at 4pm and it’s freezing cold outside. Suffice to say, there won’t be an upturn in the Manhattan property market this winter. We will see what Spring brings.

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 luxury building in Financial District has 40 units on the market for sale. Some sellers have taken their property off market and expect to re-list in the Spring.

New developments

The smart new development projects have been pricing according to the market. They are still not negotiating on price, but some are giving in on concessions. 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 and slow winter season. 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 2019. Or prices may have reached a bottom and flatten for a year or so. But timing that is impossible. What is within our control is capitalizing on a downtrend because prices have already decreased sufficiently.