Manhattan property investment performance
Posted by Wei Min Tan on May 24, 2021
Manhattan property investment performance from 1999 to the most recent 2020 shows that price per square foot increased from $480 to $2,032 during the 21 year period.
There were two downturns during this period and those were during the recession of 2009/2010 and the correction from Q2’2017 through 2019 which was driven by changes in tax laws, uncertainty from global trade wars and ultimately, the down cycle typical after an up cycle (2011-2017). COVID 19 hit NYC at unprecedented levels in 2020 and extended the down cycle.
For years 2009 and 2010, prices were down by 12 percent and 4 percent respectively. In context, the rest of the U.S. went down by 35 percent during the 2009 recession.
Manhattan experienced a correction from mid 2017 through 2019 during which price per sqft of condos was down 4 percent between 2017 to 2018 but went up 2 percent between 2018 to 2019. But it was sales volume that was down significantly.
In Q1 2020, the market can be divided into pre-March 15 and after March 15. Up to March 15, it seemed like we were starting a market recovery as evidenced by a sales transactions increase of 19.2 percent compared to prior year. Up to March 15, the coronavirus had an impact and many sellers decided not to list their property for fear of strangers coming into their homes and depressed prices. Property showings were still going on albeit with hand sanitizers and fist bumps (instead of handshakes).
But after March 15, the coronavirus hit New York City at unprecedented levels. We became the global epicenter of the virus. The entire city, apart from essential workers, came into lockdown mode. The market just stopped. The real estate market reopened in June 22, 2020 and Q2 market data saw the largest sales volume decline in history, number of transactions fell by almost 60 percent!
Published numbers for 2020 shows price per sqft of condos at $2,032. Compared to the 2017 price of $2,149 per sqft, 2020 average came down by 5.4 percent. Overall metrics in Q4’2020 improved markedly over Q3’2020 but are still lower than pre-Covid levels.
In 2020, U.S. real estate as a whole did very well despite COVID 19. This was because of limited supply and record low mortgage rates. The suburbs of New York City in New Jersey and Long Island sold in 2 days with bidding wars! People were moving out of New York City and trying to avoid density.
The bottom of the Manhattan property market was between May to July 2020, when uncertainty was highest. Since November 2020, the market has been picking up and now we’re in a seller’s market. Shortage of supply is the issue and demand is exceedingly strong, driven by record low mortgage rates, pent up demand from 2020 and optimism from the Covid vaccines. Contracts in pipeline waiting to close have been increasing weekly since July 2020 (chart below).
The trend is also towards larger 2 or 3 bedroom apartments as people seek more space. We are experiencing condos getting bids after 1 week on the market!
Manhattan investment performance over time
The average appreciation per year during the 21 years is 7.5 percent, which is a very healthy return. Since property is often purchased with leverage, a 7.5 percent appreciation can be leveraged to twice or 3X that return depending on the equity invested in the property and financing used.
Graph Data: Miller Samuel
The current rental yield for a Manhattan condominium is around 2 percent. This is based on the gross rents less common charges and property taxes as a percentage of property price. An analysis by Streeteasy talks about this rental yield. Meanwhile, Bloomberg has an article that says Manhattan condos barely yield more than government treasuries.
Manhattan property is for stability, not yield.
The reason investors globally invest in a Manhattan condo is for the stable appreciation and not for the rental yield. “Barely yielding more than treasuries” (the Bloomberg article) is not a good comparison because treasuries do not appreciate like Manhattan property. A lot of safe and liquid investments would yield more than a Manhattan condo. For example, savings accounts in certain countries or stock dividends can easily exceed 3 percent in yield.
Global investors buy Manhattan condos for portfolio diversification. Manhattan and London have the most desirable property in the world. In Manhattan, merely 10 percent of housing units are condominiums which partly explains the consistent appreciation. Seventy percent of housing inventory comprise of rental buildings and the other 20 percent are Cooperatives (which are not investor friendly).
Investors buy a Manhattan condo property for asset diversification, preservation and as a badge of pride in owning a piece of Manhattan.
Manhattan property prices appreciate with inflation
The appreciation in Manhattan is driven by inflation. About 40 percent of the CPI (inflation) index is attributed to housing cost. Prices increase because of inflation (labor and material costs go up over time). In Manhattan, appreciation is not because of speculative activity. In fact, investors make up only about 30 percent of buyers in Manhattan.
When clients ask whether Manhattan is at its “peak,” I answer that as long as there is inflation, there can never be a peak. Having a ceiling to property prices is like saying prices of goods and services must have a ceiling as well. We all remember how much goods, services and properties costed 20 or 30 years ago and know what the same items cost now.
Key is getting the right property
While the above are market-wide trends, the investor buyer needs to select the right apartment in the right building in the right location. This is where local expertise becomes critical.
We serve global investors who are buying Manhattan condominiums to rent out and we track every condo building in Manhattan. The analysis on which is a good buy goes into the micro level details such as which apartment line is more desirable, has a view, has a “wow” factor etc. These are the details that play a very important role in the long term investment performance of a Manhattan property.
Weimin’s article, Investing in West Village
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
1) The Sutton, Turtle Bay, Midtown East. This Toll Brothers development only required 10 percent reservation deposit. Represented multiple buyers at the $2 million price point. Location, classic style windows and luxury finishes make this a good investment. Close to United Nations, Citigroup Center, Blackstone, Blackrock. Rented with strong cashflow from the beginning.
Weimin’s article, Pros and cons of new property launches in Manhattan
2) 200 Chambers Street, Tribeca. Top quality building in Tribeca. Convenient location next to Whole Foods. Building is priced at premium but rents are also at a premium. This corner unit has dual exposures, maximizing sunlight. Purchased at around $1 million and has appreciated substantially since then.
3) Parc Vendome, Midtown West. Purchased at a great price and renovated entire apartment. Buy factors were south exposure with plenty of sunlight and proximity to Central Park. The photos below are the Before/After. Rented immediately after the renovation was completed.
Article updated May 24, 2021
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