Is now a good time to invest in Manhattan, New York residential property?
Posted by Wei Min Tan on April 8, 2020
The Manhattan, New York residential property market has been weak since mid 2017. This 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, New York City was hit by the coronavirus at unprecedented levels and the property market came to a standstill. As of this writing, New York City is in lockdown mode and real estate agent showings are prohibited. The market just stopped.
Given the uncertainty, clients often ask whether now is a good time to invest in Manhattan property.
Why was the Manhattan market soft?
Manhattan property has been experiencing a slowdown since mid 2017, 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, and due to the coronavirus, Q1 2020 saw a further dip 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).
Impact of coronavirus
While we wait out the coronavirus’ devastation on the economy and property market, what is for sure is that now is a very bad time to sell. For buyers, it may present buying opportunities as sellers who are still listing their property are the really serious ones. One thing’s for sure, it’s a better time to be a buyer that a seller in Manhattan property now.
In addition, the Federal Reserve, as reaction to the stimulus efforts for the economy, decreased interest rates to zero. Mortgage rates didn’t go down as much commensurately because the spike in applications and refinancings created a huge backlog of loans for banks that are not able to cope with the volume. Given the current lockdown and bank employees working from home, the mortgage processing backlog just got more severe.
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 Q1, 2020:
Average price $2.58m (-22.7% vs prior year)
Price per square foot $1,923 (-17.5%)
Transactions 1,020 (+19.2%)
Months of supply 9.5 months (-22.8%)
Sales volume in Q1, 2020 jumped 19.2 percent vs a year ago but this is reflective of the period between Jan to mid March 2020 (before the coronavirus hit). Price per square foot was $1,923, down 17.5 percent from a year ago. When compared to the peak of 2017, price per square foot in Q1, 2020 was down 10.5 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 in Q1 2020, prices were down by about 10.5 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. In the beginning of 2020, we were seeing more transaction volume but the coronavirus changed everything.
I do not know how long this market stagnation will last, and whether we will see a “V-shaped” recovery in the aftermath of the coronavirus. Goldman Sachs, CNBC and the media have various predictions, but I would be lying if I even provide any predictions. Nobody knows what the recovery will look like. Worse, the aftermath of social unrest due to massive unemployment may be worse than the current impact of the virus itself.
Since mid 2017, 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.
New developments are the only ones showing property right now, through virtual showings done through video. While sales directors at certain developments have informed me about new contracts signed amid this coronavirus situation, we know that a virtual showing is totally different from an actual showing. Buyers wants to see and feel what they are paying millions of dollars for.
Read about How to buy new launch property in Manhattan
Buyers have the biggest advantage now
Now is a good time to be a buyer. Buyers benefit from the slow (or stagnant) market which leads to more negotiability. Will prices come down further in Q2? Most probably. How about beyond Q2? I honestly do not know. A buyer wants to “catch the bottom” and that is absolutely normal. This broker doesn’t know when that bottom is, apart from the fact that negotiability and buyer advantage will be the highest it’s ever been in memory after the lockdown is lifted and the market starts to move towards normalcy, albeit in very small steps.
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 April 8, 2020