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Luxury Manhattan condos pile up as foreigners lose buying power
[BOSTON] Manhattan real estate agent Lisa Gustin listed a four-bedroom Tribeca loft for US$7.45 million (S$9.95 million) in October, expecting a quick sale. Instead, she cut the price this month by US$550,000.
"I thought for sure a foreign buyer would come in," said Ms Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot apartment at 195 Hudson St. "So many new condos are coming up right now. They've been building them for the past few years and now they're really hurting the resales."
A flood of new high-priced condominiums and mansions are coming to market in New York, Miami and Los Angeles just as international buyers, who helped fuel demand in the three cities, are seeing their purchasing power wane with the strengthening dollar.
Signs of a pullback may already be showing in Manhattan, where luxury-home sales have slowed amid a surge in construction of towers aimed at US millionaires and foreign investors.
This year, 2,386 newly built Manhattan luxury condos will be listed for sale, the most on record, data compiled by Corcoran Sunshine Marketing Group show. The brokerage defines luxury as units priced at more than US$2,300 a square foot.
"We're building a very narrowly defined super-luxury product with a fairly deep pool of buyers, but the challenge is going to be the mere fact that it's all coming at the same time," said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc. and a Bloomberg View contributor.
With the increased supply, buyers are taking longer to make deals. New and resale apartments that went into contract in the fourth quarter for US$10 million or more spent an average of 147 days on the market, almost twice as long as a year earlier, according to real estate website StreetEasy.com.
Weakness in economies outside of America, a plunge in oil prices and surging dollar may be hurting demand from international buyers, who have set records in their hunt for trophy American real estate as a haven for their money. The US dollar has strengthened against all of its 16 major peers except for the Swiss franc in the past 12 months.
While foreigners account for about 15 per cent of total Manhattan sales, they make up about 30 per cent of high-end condo purchases, according to Miller. Developers of the ultra-luxury Midtown skyscrapers One57 and 432 Park Ave. have touted their sales to buyers from around the world, including South America, the Middle East, China and Russia.
"The trajectory right now is of a softening demand of US$5 million-plus dollar apartments due to the lack of foreign buyers," said Brian Meier, a broker at Douglas Elliman Real Estate. "If the global market doesn't increase its demand on Manhattan residential real estate, we could see a sluggish super-luxury market going into the second and third quarter."
The pace of sales growth for homes costing more than US$2 million is already slowing in cities across the US Transactions in the New York area rose 10 percent last year, compared with a 27 per cent jump in 2013, according to CoreLogic DataQuick, a real estate information service. The Miami area's gain slowed to to 19 per cent from 39 per cent.
In the Los Angeles area, the number of homes sold for more than US$2 million climbed 15.5 per cent last year to 3,927, compared with a 41 per cent growth rate in 2013, CoreLogic DataQuick said.
Los Angeles Across the U.S., the luxury-home market has been healthier than lower-end segments, where buyers of lesser means may struggle to get mortgages. That has enticed developers to build more high-priced residences.
On the Los Angeles Multiple Listing Service, there were 3,198 homes with asking prices greater than US$2 million at the end of 2014, up 17 per cent from a year earlier, according to Partners Trust, a Beverly Hills, California-based brokerage. The number of homes priced at more than US$5 million, including new and existing properties, jumped 27 per cent to 546.
"They're shooting themselves in the foot," said Roger Perry, a broker-associate with Rodeo Realty in Beverly Hills. "Everyone's trying to get a piece of that luxury pie." South Florida In Florida's Miami-Dade County, which skews heavily toward Latin American buyers, almost 30,000 new condos are proposed, on the drawing board or under construction east of Interstate 95, according to CraneSpotters, a Miami-based consulting firm. There have been 71 new towers with 19,158 units proposed in greater downtown Miami since the latest boom began in 2011, compared with 84 properties with 22,200 condos built from 2003 to 2010.
"Foreign buyers are the purchasers who saved the South Florida condo market during last dramatic downturn," said Peter Zalewski, principal of CraneSpotters. "Ironically, foreign buyers are going to be the ones to push condo prices back in a tailspin because of the drop in commodity prices and weakening foreign currencies."
US home purchases by international buyers surged 35 per cent to US$92 billion in the year through March, the most recent data available from the National Association of Realtors. About 23 percent of sales to foreign buyers were in Florida and 14 percent in California, the top two states.
"We may begin to see some dent in foreign purchases" as overseas economies slow, Lawrence Yun, the Realtors group's chief economist, said in a phone interview. "The strength in the dollar makes it pricier to purchase in the US."
The euro zone economy is forecast to expand 1.1 per cent this year, compared with 3.2 per cent growth in the US, according to data compiled by Bloomberg.
In Latin America, Venezuela's oil revenues are falling, while Argentina struggles to pay its foreign debt. Russians, who've purchased some of the most lavish homes in Manhattan and Miami, face a contracting economy, plunging currency and falling revenue from oil.
In the 12 months through Jan 20, the euro fell 15 per cent against the US dollar, while the pound lost 7.8 per cent. Argentina's peso has tumbled 21 per cent and the Russian rouble plunged 48 per cent.
In February 2012, a penthouse at New York's 15 Central Park West was purchased for the daughter of Russian billionaire Dmitry Rybolovlev for US$88 million, a record at the time. The condo, which would have cost about 2.6 billion rubles at the time of the closing, would cost more than 5.7 billion roubles at today's rate.
"There's no question the rouble falling as precipitously as it has put a damper on things," Marlen Kruzhkov, an attorney with New York-based Gusrae Kaplan Nusbaum PLLC, who represents foreign buyers in U.S. real estate deals. "But it works two ways. There are those people it's going to prevent from buying. And at the end of the day, there are those people it just reinforces for them the reasons they're moving their money out of the country in the first place." Chinese buyers - who spent $22 billion on U.S. homes in the year through March, up 72 per cent from a year earlier, according to the National Association of Realtors - may be an exception to the pullback. Their purchases in Manhattan are "increasing significantly," said Pamela Liebman, president of brokerage Corcoran Group.
Manhattan's status as a safe haven for buyers means it may ultimately benefit from overseas turmoil, driving wealthy foreigners into dollar-denominated assets even as exchange rates limit buying power, according to Gregory Heym, chief economist at Terra Holdings LLC, owner of Brown Harris Stevens and Halstead Property. Some developers may have to adjust prices as the supply grows, he said.
"I get the concern that in an area like 57th Street, too much is being built in an area that hasn't had a lot of residential development in the past," Mr Heym said. "It's very aggressive pricing in a lot of those buildings, a lot of them raised prices a number of times since they opened their sales office." Midtown's 57th Street neighborhood, fringing Central Park, has emerged as a billionaires district, where developers are racing to build ever-taller skyscrapers.
At One57, the Extell Development Co. project that set off the construction boom, deals slowed to a trickle amid competition from newer properties reaching the market. Just one contract was signed in each of the first three quarters of 2014, Extell said in a filing on the Tel Aviv Stock Exchange, where the company sells debt to investors. As of the end of September, 24 of the project's 94 condos were unsold.
It wasn't like that when sales began in 2011. Deals at One57 totaled US$1 billion in the first six months, including a contract for a duplex penthouse for US$100.5 million, which set a New York price record when it was completed last month.
Rival Towers Extell also is building 184 units at 225 W. 57th St. Half a block away from One57, JDS Development Group and Property Markets Group plan to start sales of the 59 units at the tower they're building at 111 W. 57th St.
Just to the east, Harry Macklowe and CIM Group's 432 Park Ave., where a penthouse is under contract for US$95 million, is nearing completion as the tallest residential building in the Western Hemisphere. And Zeckendorf Development Co. plans to start sales this year at 520 Park Ave., near 60th Street. A triplex penthouse will be offered for US$130 million, making it New York's most expensive listing.
While all the apartments coming to the market will be absorbed, it will take time, according to Leonard Steinberg, president of brokerage Urban Compass.
"It won't be at the speed and pace we experienced over the past two years because that was abnormal," he said. "So it will appear as an oversupply at first." The luxury sales frenzy since 2012 was caused by a limited inventory after the global property rout all but shut down construction for almost three years, according to Steinberg.
Now that buyers have more options, deals will progress at a more "normal" speed - about two to four years to sell out a building, he said.
"Some people will get a little panicky because things are not selling as fast," Mr Steinberg said. "But what we experienced over the past two years was not reality. That was a moment in a century."
In the Los Angeles area, about two dozen mansions with prices starting at US$20 million are being built on speculation that a buyer will eventually emerge. Last year, 19 deals were made above that level, including a US$70 million purchase of an eight-bedroom Beverly Hills house with an original asking price of US$85 million.
"There's an oversaturation of very similar spec houses and there are more of those than there are buyers," said Stephen Shapiro, a partner at Westside Estate Agency in Beverly Hills. "There's always going to be people coming here and spending big bucks on housing. It's a question of how many."
Alessandro Cajrati Crivelli reduced his asking price this month on a 16,000-square-foot spec mansion in Los Angeles' Holmby Hills district to US$35.5 million, down from US$45 million when he first listed it in June.
"We received offers now, finally," said Cajrati Crivelli, founder of Est4te Four Capital LLC, a developer of luxury real estate in London, Milan, New York and Los Angeles. "I decided I will sell it no matter what price." In Manhattan, all the new construction is making it more challenging to sell pre-owned condos, according to Gustin at Brown Harris Stevens.
The 7.4 per cent price reduction for the Tribeca apartment she's listing was "a solution to get more people in," Gustin said. "I had a hot neighbourhood. I had a luxury building. I had an immaculate apartment that was glamorous. I didn't anticipate waiting."
Renato Cassano, a real estate investor from Italy, is biding time before trading up from the one-bedroom condo in New York's financial district that he bought in 2010 for US$925,000 and rents out. While he plans to sell that property and spend at least US$2 million for a two- or three-bedroom, he's waiting until the euro strengthens.
"Today, New York prices are good for me," Mr Cassano, who owns nine residential and commercial properties in his home country, said in a phone interview from Rome, "But the exchange rate is almost like a penalty."
His agent, Santo Rosabianca, said Mr Cassano was the second European client to pull back from the New York market because of the exchange rate and rising prices.
"Things might take longer, but they're still going in Manhattan," Mr Rosabianca said. "The foreign national still wants to be on the island of Manhattan."