More than a place where super stars and the super wealthy rub elbows with struggling actors, it’s a place where monuments and neighbourhoods are famous in their own right: the Metropolitan Museum of Art, the Statue of Liberty, Rockefeller Center, Wall Street, SoHo, The Village, Broadway, the Yankees, the Mets. Manhattan is New York, New York— the most sought-after brand name of all the property markets in the world. And everyone is always in a hurry, so pick up the pace.
The property market
As a brand, Manhattan is cool. Honestly, would you rather have an apartment in Melbourne, a city regularly voted the most liveable city in the world, or an apartment in Manhattan, a city widely recognised as the most exciting in the world? That’s what I thought.
The island of Manhattan sits at the mouth of the Hudson River and is one of the five boroughs of New York City, although it also includes the smaller islands of Roosevelt, Ellis, Randall’s, Ward’s, Governor’s and Liberty (home to the Statue of).
Even with the recent economic woes to hit America, a 2012 Cushman & Wakefield study showed that Manhattan’s property market saw the highest volume of residential property transactions in the world: US$34.7 billion. Although not immune to economic fluctuations, it would seem that regardless of the current financial climate in the US, buyers – especially foreign investors – still bank on The Big Apple for investment returns.
In fact, the NY Times reported that in just the last three months of 2012 there was a 40% increase in the number of sales on the Island, virtually drying up the stock. The reason, they say, is the new tax laws due to come into effect on January 1, 2013.
Mr. Wei Min Tan, Managing Director of Castle Avenue Partners at Rutenberg Realty in Manhattan, clarifies: ‘There has been inventory shortage especially in the condo segment which foreign buyers typically buy. According to stats, inventory level for condos decreased by 37% in 4Q’12 vs. a year ago.’
Mr. Tan however concludes that this shortage ‘is not related to the fiscal cliff tax issue. It’s simply supply vs demand. Less people are selling, perhaps because they realise the value of their Manhattan property now that the economy has improved. For buyers, there is a buying frenzy driven by the economy and low interest rates.’
Property prices in Manhattan are still lower than before the recession, however, which means that, regardless of American taxation law, it’s still a buyer’s market in terms of investment. Experts generally believe that foreign cash investors are likely to additionally boost property prices further in 2013.
And foreign buyers especially need have little to no concern with the new 2013 US tax laws. Mr. Timothy Wong, Esq, a Manhattan-based CPA explains:
- The tax changes should not impact the vast majority of foreign buyers buying US$1 to $5 million condos.
- The new tax deal increases capital gains tax (a seller item) for individual filers with taxable income of US$200k and above, and further files with US$400k and above.
- Since most foreigners would only have U.S. income from their New York rental property, their taxable rental income would not come anywhere close to US$200k because taxable income is net of carrying costs and depreciation.
The Federal Reserve Bank of New York believes that, at the moment, there is better financial value on the Island for renting than for buying, stating that there is currently less value in owning a property. This is because the overall price of apartments have increased relative to rental prices. If the locals are renting instead of buying, however, then now is the time for a foreign investor to jump in and take advantage, especially if in a situation to drive in and ‘park’ their money.
Rental yields can vary across Manhattan but generally fall within 4.5% to 6% before taxes, or 3.5% to 5% after taxes. Unlike many other large property markets, it is better in Manhattan to consider the overall appreciation of the property prices rather than immediate rental yields. While net profits from renting should exceed operating and financing costs in the short term, the ultimate goal in Manhattan is the long-term appreciation of the property.
Property and Taxation
The options for investing in a Manhattan property are typically with apartments, either a condominium or a cooperative. Most foreign investors choose condos because of their long-term appeal and appreciation values, and because buying into a co-op requires approval from the co-op board. Either way, an apartment is easier to maintain as an investment as opposed to other multi-family homes, which include brownstones and town homes.
- Annual Operating Tax: taxes of profits from a rental property. Requires a 40% deposit.
- Estate Tax: regulates the tax payment in the event the owner of the property dies, which can be as much as 50%.
As always, good financial planning can help decrease any risk and it is advisable to employ the services of a qualified Financial Advisor or Planner, in addition to the services of a local Lawyer or Attorney.
And of course you will need an Estate Agent: In Manhattan the Agent’s fees are paid by the seller, although it’s not uncommon for negotiations between the buyer and seller agents to split the commissions. Nevertheless, one agent cannot represent both buyer and seller and so it is important to hire your own.
Rather than working with multiple agents in order to find the best deal, however, find an agent you like, who comes highly recommended, and works hard for his or her commission. America, including New York, uses a Multiple Listings Service (MLS) which is a database of all properties for sale in the entire country– all agents have access to all listings.
How to buy?
- Financing/Pre-approval: If borrowing money to purchase a property (or two), a buyer must start by getting pre-approval from the lender to show an estate agent and potential buyers that they truly have the means to follow through with the purchase. It is unlikely that anyone will take a buyer seriously until pre-approval is shown. If cash is used instead of a mortgage, the buyer will still need proof of purchasing power, such as a bank or tax statement.
- Make an offer: Once a property is found (using an agent, although it is possible to find properties being privately sold), an offer is made and then negotiated.
- Contract/Deposit: A binding contract is formed by both the buyer’s and seller’s attorneys and a deposit of normally 10% (although as much as 20-30% for foreign buyers) is placed into a trusted third-party account called an ‘escrow’ account. It is a good idea to include a clause in the contract that allows for a professional inspection of the property so that they buyer may pull out of the deal if the inspector’s findings prove too problematic for the buyer.
- Appraisal: An appraiser gives the market value of the property and a title search is performed to ensure the property is free and clear to be sold.
- Closing: Finally a closing is scheduled where all interested parties and their representatives come together, sign a lot of paperwork, and transfer the title and funds (including the deposit held in escrow).
Where to buy?
This is an impossible question to answer because there are far too many variables in the equation. Up-and-coming neighbourhoods may offer the highest investment returns, but it’s hard to say what is coming up and how long it be before a neighbourhood is considered ‘up’. Established neighbourhoods often offer better rental return value and are a lower-risk option, but it can be difficult to find property for sale, especially in the current market.
Options include Uptown and Midtown as well as places in between Uptown and Midtown. Or you can go Downtown. And then there are the Islands.
Highlights of some of Manhattan’s most notable neighbourhoods:
- Harlem – Improving.
- Upper East Side – Quaint, affordable, with access to retail and dining.
- Upper West Side – Including Central Park West, it’s posh and expensive.
- East VIllage – Nightlife abounds. Expensive, trendy, close to NYU.
- TriBeCa (Triangle Below Canal) – Hip, trendy, safe, expensive and lots of loft spaces.
- Lower East Side – Quintessentially NYC with diversity, noise, and more affordably priced housing.
- Chelsea – Areas of loveliness and areas of crime. It’s a pickem.
- Midtown East – Expensive because it’s convenient. Busy during the day and quiet at night.
- Midtown West – Higher crime than you might like, and plenty of buildings using asbestos insulation.
- Financial District – Crowded by day and empty at night. Safe.
- Hell’s Kitchen – A bit rough and tumble.
- Greenwich Village (‘The Village’) – Upper middle class residences with lots of student housing.
- East Village – Near NYU, loads of bars, restaurants, retail.
- West Village – Everything you’d expect from NYC, and therefore expensive.
- SoHo – Bars, restaurants and retail, but quiet at night.
- Chinatown – The largest regency of Chinese immigrants in the West.
There is far more to Manhattan than a list such as this can ever show. Native New Yorkers will attest to anyone willing to listen about the virtues of what they believe is the greatest city on earth, and foreign buyers are listening– and swarming to the city for investment in record numbers.
Perhaps they want to be ‘cool’ or perhaps they seek a sound investment in property. Either way, the Manhattan investor wins.
For more information behind how propertys are listed in New York City, and the reasons this market is just so efficient, read The all-access, transparant Manhattan market. Or there’s also a 2012 Manhattan market wrap up availble. Both from Property Life‘s Manahattan Condo expert, Wei Min Tan.