On Location: New York
The city that famously never sleeps bursts with energy – with inhabitants who work and play harder than anywhere else in the world. Filled with famous people, parks, bridges and stations, New York can sometimes feel remarkably like a film set. And from Chinatown and the West Village to the Upper East Side and Brooklyn, there’s a neighbourhood to match most tastes.
Tim Murphy, founder and CEO of IP Global
Richard Baumert, partner at Millennium Partners
Dottie Herman, president and CEO of Douglas Elliman Real Estate
Is now a good time to buy?
TM (Tim Murphy): Supply in New York has always been constrained, but demand is stronger than ever thanks to the city’s continued economic revival: in Manhattan, we’re seeing 99% rental occupancy, with rents going up 9.5% per year. With mortgage rates at record lows, and property prices still 15% below peak, we think this is a great time to get into the New York market.
RB (Richard Baumert): In talking about New York’s residential market, and in particular luxury residential, we generally focus on Manhattan below 96th Street. The market is strong in this relatively small area because there are limited development opportunities available to meet an increasing demand that is more and more international in scope.
DH (Dottie Herman): The time to invest is when it is right for you. Everyone is different in this regard although our current market is experiencing a high level of interest from across the globe. Manhattan has shown itself to be one of the best housing markets in the country since the 2008 financial crisis with stability in prices and sales activity for the past 3 years. Foreign buyers around the world have come to view Manhattan as a global safe haven. The rental market is near record levels right now, which is of particular interest to investors from outside the US.
The outlook for 2012/2013?
TM: After taking quite a battering in recent years, the US economy is on its way to recovery. Unemployment is at a four-year low, while the consumer confidence index is the highest since January 2008. Looking at New York in particular, it was never as badly hit as other American cities – for example, if we look at foreclosure rates, New York’s is just 0.02%, or 1/25th of what Las Vegas is experiencing. In fact, New York is considerably ahead of the national average on every significant economic indicator. For Manhattan residents, wages are growing at 9% yoy, far outpacing the national average of 3.8%, and 16% of them are making more than $200,000 per year.
RB: The consensus is that the economy is generally improving, that the unemployment rate is slowly dropping, and that certain sectors such as financial, technology, and media, which are well represented in New York, are growing robustly.
DH: Elevated unemployment and tight credit remain the key economic challenges facing the US over the next two years. The US economy is expected to remain weak for the remainder of 2012 with some modest improvement in 2013.
Which specific areas would you recommend?
TM: The Upper East Side has always been one of the world’s most prestigious addresses. Within that neighbourhood, the area east of Lexington is set for particularly strong growth, as the expansion of the Second Avenue subway will greatly improve accessibility and commuting times.
At the other end of Manhattan, the Financial District is undergoing quite a renaissance. There are now a great deal of retail and leisure facilities down there, which – combined with its proximity to Wall Street and the new World Trade Centres – makes the area especially appealing to affluent professionals looking to rent.
RB: Traditionally, the most desirable areas are the Upper East Side and the Upper West Side – above 59th Street which is the southern boundary of Central Park. These areas have excellent residential stock, are near the major cultural facilities, and have good transportation, shopping, restaurants, etc. Greenwich Village has also always been highly desirable. Other strong areas are TriBeCa, the downtown financial district, and Battery Park City.
DH: It depends on your needs as an investor such as whether you are looking for rental income, or a pied-a-terre for the long run. The Financial District and Midtown are two areas that appeal to investors for their close proximity to tourism sites and available condo or condo/hotel properties.
What hidden costs should buyers be aware of in New York?
TM: One of the reasons that New York is so appealing to overseas investors is its low barriers to entry, both in terms of costs and legal/administrative requirements. Having said that, one thing that often surprises clients is New York’s Mortgage Recording Tax, which is about 2% of the mortgage amount. When taken into consideration with New York’s transfer tax (stamp duty) of 1.825%, the overall rate is generally on par with, or less than stamp duty in the UK or Hong Kong.
RB: Buying a new condominium is pretty straightforward. Each property has an Offering Plan which covers thoroughly the purchase process – the floor plan, the finishes, services, purchase price, monthly condo fees and real estate taxes. The latter can get a little complicated because some projects have tax abatement which means that the taxes are low in the first few years and gradually rise. Most buyers are represented by both a real estate agent who can identify suitable properties, and a lawyer to review the Offering Plan, and handle the closing. A good property manager is also important if the buyer intends to rent the unit. There are transfer taxes and mortgage recording taxes that must be paid at closing. Buyers should get an estimate of their closing costs from their agent or lawyer. The agent is typically paid by the seller. The buyer’s attorney must be paid by the buyer, of course.
DH: Purchasing a home is a big deal for many people. First, there are closing costs you have to plan for, agent commissions, move-in costs, utilities, mortgage payments, maintenance fees in co-ops and condos, as well as annual property taxes. These are all things you need to consider before you make that first down payment.
Are there any complications for non-resident buyers?
TM: New York is extremely welcoming towards foreign buyers, with no restrictions on property or land ownership. Non-resident buyers should, however, always be aware that buying property anywhere outside of their home country may involve some extra requirements. Mortgages are widely available to non-residents, but banks generally require more documentation to assess their creditworthiness. Additionally, while the U.S. tax code treats citizens and non-citizens alike, many foreign nationals can find the American tax system confusing, so finding a tax advisor with US expertise is crucial.
RB: Financing a portion of the purchase price will be more difficult for a non-resident, as well as having a better understanding of the US tax system. Seeking sound local advise is encouraged.
DH: New York is very friendly toward foreign buyers, but perhaps one of the bigger challenges is purchasing a co-op from overseas. As with any co-op purchase, there is a board approval process that could be quite lengthy. Many times, the boards want to conduct interviews with perspective buyers in person, which can be challenging for those living out of the country. That’s why it’s necessary to get an excellent real estate agent who can walk you through the process.