Property investment in New York
Posted by Wei Min Tan on October 20, 2022
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 inflation, political uncertainty, disruptions in global trade and currency volatility.
New York and London are the world’s top cities
The Wealth Report by Knight Frank consistently ranks New York (Manhattan) and London as the world’s top cities. This year, London claimed the top spot while New York is the #2 city in terms of Wealth, Investment and Lifestyle. Below is a brief description of the categories:
(1) Wealth – center for high net worth individuals earning US$250,000+ annually. New York is #1 in this category.
(2) Investment – flow of private investment into the city. New York is #5 here.
(3) Lifestyle – number of top hotels and restaurants. New York is #3 in terms of Lifestyle. London is #1 here.
New York is the world’s wealth capital with the most ultra high net worth individuals. Tokyo and San Francisco are runners up.
New York is the U.S. East Coast’s Silicone Valley
New York is now the East Coast’s Silicone Valley. We are no longer solely reliant on the financial industry. For example, Facebook and Amazon are expanding in Manhattan while Google has built a second campus in Hudson Square. The largest corporate tenant in Manhattan is now Facebook!
New York is also one of the most vibrant cities for startups. Yes, costs are high, but the talent pool, diversity, culture, entertainment and opportunities are unbeatable. The Top startups to watch in New York include Walnut which provide interactive sales demos, Apploi which provides software for recruiting and Capitolis, a technology company for the capital markets.
Weimin’s article, Investing near Google and Disney.
Deal example: 88 Greenwich, 35th floor waterview apartment overlooking New York Harbor. One block from World Trade Center. Investor client purchased with tenant in place for immediate cashflow.
Property prices in New York
Investors typically invest in condominium apartments and these start at $650,000 for a studio. One bedrooms range from $800,000 to $2 million, 2 bedrooms from $2 million to $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 $2,032 in 2020. Prices dipped to $1,714 in Q1’2021 and this period reflected the pandemic deals. By Q4’2021 prices was back up to $1,989, and in Q3’2022 it was $2,080. Current prices are still lower than the peak of 2017 but sales volume in 2021 and Q1’2022 hit record levels as Manhattan recovered from the pandemic.
Property price correction and COVID
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. In 2019 condo prices were up 2 percent to $2,098.
In 2020, from January until middle of March, Manhattan appeared on the recovery path. Sales volume went up considerably and we thought the up cycle was returning. Then COVID-19 hit New York City which consequently became the COVID epicenter of the world. Listing volume was already low from Jan – Mar 2020 as sellers didn’t want to list their apartments for fear of strangers entering their homes. From mid March to end of June 2020, we had a lockdown and all real estate activities were banned by the government. We had a stay-at-home mandate.
The best deals were those signed during this lockdown as uncertainty was at the highest level. I represented a buyer client who had an accepted price at $3.2 million. Contract wasn’t signed yet and we entered lockdown. We renegotiated the price down by $400,000 during the lockdown. It was in a new development too.
Prices came down 7 to 10 percent as result of COVID. Based on various analysis on metrics such as median price, sales volume etc, the impact of COVID matches the Great Financial Crisis of 2008.
Weimin’s article, Is now a good time to invest in Manhattan property?
Deal example: 40 Mercer in Soho. Ultra luxury apartment building commanding premium rents, in Soho. In this deal, we also took over with tenant in place which meant no vacancy period having to look for a tenant.
Record sales volume in 2021
For the sale market, the lowest point of the pandemic was between May to July 2020. Note that the entire property market was closed between March to June 2020. The Manhattan market started picking up from November 2020, and 2021 was a very strong seller’s market.
Transaction volume for condos and coops combined was the highest ever recorded, even higher than in 2007. This was driven by low interest rates, people moving back into Manhattan, pent up demand from buyers who didn’t buy in 2020 and reopening of the economy.
The current Manhattan property market
Sales volume was still strong through Q2’2022 but dropped by 24 percent in Q3’2022. Since early 2022 we have been experiencing high inflation. This resulted in the Federal Reserve increasing interest rates which led to borrowing costs overall increasing.
The 30-year mortgage rate rose to 7 percent compared to 3 percent a year ago (chart below). Since half of Manhattan buyers need financing, this segment became renters instead, as mortgage payments would have increased significantly if they were to buy. As a result, we are in a buyer’s market again.
Market Pulse below shows we are again in buyer’s market territory (bottom section of graph).
Meanwhile, rents have been increasing by double digits. The most recent September 2022 average rent at $5,287 was 22 percent higher than a year ago because of (i) inflation, and (ii) increased rental demand from buyers who held off from buying.
Currently, all-cash buyers have the most negotiation power. For investors who can buy all cash, rental yields are at a high because rental prices have been breaking records every month.
Where to find listings
The U.S. market is very transparent. All properties 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.
Weimin’s article, Manhattan Property Review
Deal example: 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.
Have a New York property 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 contractor 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 is 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.
Weimin’s article, Investing in a West Village apartment
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
This article was updated October 20, 2022
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