Property investment in New York
Posted by Wei Min Tan on January 22, 2020
Property investment in New York, specifically in Manhattan, is a prudent decision taken by successful individuals as part of their portfolio planning. For foreigners, investing in New York property is seen as a safe haven for assets because of the limited supply and high demand coming from people who live here and investors from all over the world. New York property is a hedge for investors as the world experiences uncertainty in global trade, currency volatility, rising fundamentalism, and raising inequality which creates unrest.
New York is ranked #1 city
The Wealth Report by Knight Frank ranks New York (Manhattan) the #1 city overall in terms of:
(1) Wealth – center for high net worth individuals earning US$250,000+ annually
(2) Investment – flow of private investment into property
(3) Lifestyle – number of top hotels and restaurants
(4) Future – forecast GDP growth
In the category of Wealth, the Knight Frank report shows New York has 1.1 million households earning US$250,000+, with Los Angeles coming in second at 637,000 households.
The Wealth Report shows New York has the #1 spot in terms of forecast GDP growth, estimated at $1.8 trillion by year 2022. Second place is Tokyo at $1.6 trillion in 2022.
The New York economy has been very strong. We are experiencing record low unemployment and strong GDP growth. Trump’s tax change that lowered corporate taxes to 21 percent will have further positive impact on the economy as New York is the top city for Fortune 500 companies.
Investors typically invest in a condominium apartment and these start at $650,000 for a studio. One bedrooms range from $850,000 to $2 million, 2 bedrooms from $1.8 million to $4.5 million. Three bedrooms start at $3.5 million. Anything larger than a 3 bedroom is a mansion by Manhattan standards.
Our investor clients usually rent out the condo investment property. Here in Manhattan, about 75 percent of residents are renters while 25 percent are owners. Hence, being a landlord means having a large renter pool.
For historical context, price per square foot for a condominium was $480 in 1999, $1,374 in 2008, $2,149 in 2017 and decreased to $2,067 in 2019. Notice the appreciation is stable but not high.
Property price correction
Despite the strong economy, New York property in 2017-2019 experienced a price correction. Price per square foot increased from 2011 to 2017. In 2018, price was down 4 percent. This down cycle was mainly driven by changes in tax laws and global uncertainties.
Self-use buyers are having a wait-and-see attitude because the change in mortgage tax deduction affects the tax benefit they get from owning property. In addition, the tax deduction from property taxes have been capped. For those deciding whether to buy or rent, the latter seems more favorable now.
The only other year where there was a price decrease in New York was in 2009 when the recession happened.
Good for investors
The current correction represents an opportunity for investors. Rental demand has increased while rental vacancy in Manhattan, at 2 percent, is the lowest in the country.
Investors should target property that are in high demand by local New Yorkers, because the target rental market and eventual sale market would be driven by locals.
Where to find listings
The U.S. market is very transparent. All property for sale are listed on the major websites so the buyers and brokers have access to the same properties. The main website for Manhattan inventory is streeteasy.com, but the same inventory will show on other websites as well.
Have a team
The broker usually is the key coordinator for your local team. In our model, I as the broker would bring in the lawyer, mortgage banker, accountant and handyman to play the different roles needed. The buyer’s broker’s main role is in recommending the right buy and managing the process. An equally critical role is in coordinating the team.
Downsides of property investment in New York
Price appreciation is not aggressive: New York property appreciates steadily so don’t expect prices to double in a year or two. Rather, prices grow at between 5 to 10 percent per year. For a more aggressive property investment strategy, the developing markets would be better.
Structure and paperwork: Be prepared for a lot more structure, paperwork and bank verifications than in other countries. There are licensure and regulations for all functions. Everything is verified by the lending bank and there are formal processes for everything, from appraisals to title reports to closing processes. Some clients have mentioned that in their country, the transaction can take place behind a coffee shop. Absolutely not so with a New York transaction.
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) 88 Greenwich, 35th floor waterview apartment overlooking New York Harbor. Client purchased with tenant in place.
2) 40 Mercer in Soho. Ultra luxury building commanding ultra luxury rents, in Soho.
3) 111 Murray in Tribeca. Reserved at pre-construction and prices went up 20 percent upon completion. The green building is the Goldman Sachs headquarters. Read about Pros and Cons on new property launches in Manhattan.
This article was updated January 22, 2020
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