By Jeff Arestivo, Head of Residential Real Estate Sales, North America
June 26, 2019Posted InReal Estate
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Prime property prices are continuing to fall, making investors nervous. But we believe the long-term outlook is positive.
Manhattan’s luxury property market continues to battle falling prices and low sales as this year’s spring sales show a turnaround is unlikely anytime soon.
For many investors, Manhattan property prices were untouchable, but in the past few years, real estate in the area has been feeling the effects of an oversupply in the market caused by a construction boom. As a result, 2018 saw sales slowdown, prices drop up to 20%, and the average sales cycle lengthen sometimes double.
So far, 2019 has not shown any signs of a reversal of fortunes. Home sales dropped for a sixth straight quarter in the first three months of the year, with the fewest number of transactions for a first quarter since 2009. We have even seen lower prices and slow sales continue in the early days of this year’s spring sales season – often considered to the busiest period in the market and is often seen as the strongest market indicator.
On top of this, we also expect new taxes implemented this year to weigh down heavily. In April, a $10,000 cap on the amount of state and local taxes that households can deduct from their federal income taxes was implemented across the US. In addition, in July, New York’s mansion tax is set to increase from a flat 1% rate on all home sales over $1 million to a progressive tax starting at 1.25% on homes sold for between $2-$3 million, up to 3.9% on homes sold for $25 million or more.
Both these things are expected to strengthen buyers’ hand even more as the uncertainty may make anxious sellers keen to make a deal sooner rather than later.
Although falling property prices can make investors nervous over long-term potential, we believe the outlook remains strong for Manhattan’s luxury property market. The key message to remember is that prices have not dropped because there are fewer buyers or there is a lack of appetite for Manhattan, but we are seeing a correction and sellers are repricing according to the market
According to Richard L. Jordan, Senior Vice President of Global Markets at leading U.S. real estate firm Douglas Elliman; the global economic downturn has impacted all prime markets around the world, including New York.
He said: ‘In New York City, recently increased levels of inventory have allowed the market to normalize as sellers adjust price expectation and buyers take more time to review their options and negotiate. Alternatively, buyer demand remains strong as sophisticated buyers/investors continue to target markets with a proven track record of long-term capital preservation while providing market transparency and opportunity.’
There has been much speculation over when we will see some stability – with some experts predicting this cycle will last 5-10 years. Therefore, it is vital both buyers and sellers take time to consider their options.
Sellers should assess the reasons why they are looking to sell and how they feel about the current market value. Based on this, they can decide whether they can or want to outlive the cycle. Buyers should ask similar questions, but they should perhaps think long and hard if looking to buy a short-term investment property.
New York is one of the most exciting cities in the world to live, with a thriving financial district, first-class schools and universities, and amazing theatres, restaurants, and parks. It is not only considered a safe haven, but home to many people from all over the world. Although we are experiencing a difficult period in property, we believe this is a dip in the cycle and New York’s global attractiveness will prevail.