New York luxury property buying opportunity amid COVID-19 pandemic?
Posted by Wei Min Tan on April 26, 2020
The COVID-19 pandemic could mean a buying opportunity for Manhattan luxury property. We know the Q2 market will be terrible due to a frozen market, spike in unemployment and GDP shrinkage. Buying opportunity will be in Q2 – Q4 because the pickup will take time. Most market participants will take a look-and-see attitude and re-enter the market in Q3 and Q4. The key question for investors is whether this is a buying opportunity and whether the Manhattan market will recover.
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Pent up demand and supply
Since March 15 till now, the Manhattan property market has been frozen because of the lockdown. Between Jan to March 15, the Manhattan market was actually very strong. Condo sales was up 19 percent compared to prior year. Hence we know that the demand is there. On the supply side, sellers held back on listing their property for fear of strangers going into their homes. Listing inventory fell 8 percent in March when it historically goes up about 10 percent. This means supply shrunk, but supply is also still there.
The pent up demand and supply will meet again, the question is whether they converge to normal in Q3 or Q4. We know that Q2 is a goner, since we are already 3 weeks into Q2 and lockdown is still in effect. We recommend to clients that Q2 and Q3 are the buying opportunity period. Investors should enter while there is still concerns and uncertainty, not when the market resumes to normal.
Weimin’s article, Benefits and Risks of Investing in Manhattan Property
Q3 sharp rebound expected after terrible Q2
Goldman Sachs predicts Q2 GDP to decline 34 percent, the worst decline since the Great Depression. This to be followed by a 19 percent rebound in Q3 GDP, the sharpest rebound ever. Reasons are:
(1) The Q2 contraction is not because of natural business fundamentals but rather driven by a pandemic which resulted in a shutdown of businesses. Once the pandemic is over and vaccine or medicine developed, things would move back to normal again, although the gradual climb is still necessary.
(2) The $2 trillion CARES Act is expected to flow into the economy and play a big role in the revitalization. The Act includes $500 billion to individuals, $300 billion to small businesses and $200 billion to major industries. The CARES Act is the largest ever stimulus package and represents 10 percent of GDP. This is a key reason economists are hopeful for a rebound in Q3, 2020.
Review Weimin’s analysis of Manhattan Condo Historical Price Trend
Will people move out to the suburbs?
There may be a larger move out to the suburbs post pandemic. This is to live with more space in a less densely populated area. One reason New York City was so greatly affected was the denser living conditions of residents. For example, living in apartments vertically means a lot more people per acre compared to living in suburban houses.
However, 911 and Lehman show that people forget with time. After both tragic events, there was a temporary period where people shied away from Manhattan. But newcomers kept coming to Manhattan while some moved back into the city. Manhattan prices continued setting new records. National Geographic’s Cities Issue, Jane Jacobs and numerous sociologists expect city living to be the way of the future. City living is environmentally more sustainable than suburban living. City living promotes integration with various people, promotes creativity and drive, provides an abundance of entertainment and cultural activities, and saves time on commuting. Moving to the suburbs means 1 – 1.5 hours of commuting each way or 2 – 3 hours per day.
Millennials as catalyst of recovery
First time home buyers, mostly millennials, are predicted to be the catalyst of the recovery. This is because first time home buyers are less diversified which means lower stock market exposure. The stock market took a major hit from COVID-19. Millennials are expected to be back in the market post pandemic and negotiate to take advantage of the buying opportunity.
Read Weimin’s article about Buying Manhattan Condo to Rent Out
Interest Rates at zero
As a response to the pandemic, the Federal Reserve decreased the fed funds rate to zero. Mortgage rates are currently near the 50-year low. This is reason why banks are so overloaded with mortgage volume that they deliberately increased mortgage rates, and why mortgage rates didn’t go down as low as we would expect. Nevertheless, rates are still at historical lows.
Banks are tightening lending standards, mainly through more conventional loan-to-value (LTV) requirements. 90 percent LTV should be going away as result of this pandemic.
Summary
In conclusion, we are optimistic on Manhattan property post pandemic. There will be a brief buying opportunity window between Q2 to Q4 when buyers have a big advantage in terms of negotiation. After that, the market should return to normal as businesses resume, a vaccine or medicine is developed, and COVID-19 becomes another flu.
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
Deal Examples
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 at premium rents from the beginning.
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.
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