Back Home2016 Quarter 2 Market Analysis
New York City has seen its fair share of pressure in the real estate industry as of late. Although the overall pricing has dropped, there is a low demand for the properties that are on the market; and the industry has seen fewer sales. The Corcoran Quarterly Report states that “decreases in the resale market lead to a year-over-year drop in overall closed sales despite strong new development closings” (1). In addition, “the number of sales closed has dropped by 14%, and the number of contracts signed has declined by 20%” (1).
Despite the increase in inventory, there are a number of factors that could be contributing to the slow in sales of real estate. Corcoran’s market analytics states there are two main contributing factors: “The increase in inventory, combined with a drop in sales compared to last year, helped contribute to the longer average time from listing to sale” (1). A lot of recent halt is caused due to instability in the marketplace especially in light of the recent political events like the Brexit vote and the 2016 United States Presidential election.
Michelle Higgins of the New York Times writes that “It’s not just the volatility of financial markets that has big spenders sitting on their wallets. Other global trends that have put the lid on high-end spending include China’s tightened restrictions on capital outflows, uncertainty surrounding Britain’s decision to leave the European Union, lower oil prices curbing wealth in the Middle East, and tax increases and other measures that have driven up property transaction costs in some countries” (2). Both the real estate market and financial industry have become factors in real estate transactions. The modern buyer is not looking for just a property, but a wise investment for the long term.
These conditions pertain to foreign investors who often look to New York City as a stable marketplace for investment. The condominium developments that cater to these investors have shifted the overall market supply, especially in Manhattan. There is also a halt of purchases from the foreign investor due to transparency laws that have been enacted in the United States that require investors to identify themselves (to avoid hiding investments through shell companies). In addition, financial institutions are taking further action to ensure that another housing crisis does not occur due to their direct actions (or lack thereof). Banks are beginning to appraise property and owners are lucky to be able to take 60% out of their properties when they are owned in full.
From the point of view of the developer, many of the new development projects that are backed by private investors and venture capitalists aim to halt development now to avoid losses in the future, as the demand for ultra high end condominiums keeps declining. But even as properties are lingering on the market, developers continue to build these condominiums. The Corcoran Quarterly Report states that “the number of new development condos available is up 25% over the prior year” (1). However, over half of sales were for condos (versus co-ops) and “the amount of condo resales is up 20%” (1). That being said, this hesitation in investment and sales will halt the development and effect the prices of the ultra high end luxury apartments (that were high in demand in both 2014 and 2015) because of the overflow in supply.
Despite the relatively slow investment in the real estate market, “there is still very good activity,” said Gary Barnett, the president of Extell. “It’s hard to close deals because people are not in a rush” (2). People have the mentality that they “can come back in a month and it will still be there or maybe the price will be lower” (2). Perhaps that will be the case. However, the developers, property managers, and sellers will need to provide an incentive for buyers if they want to expedite the process. Otherwise, they must wait until the market becomes more attractive and competitive worldwide.
(2) New York Times
