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NYC's Pool of Foreign Real Estate Buyers Shows Signs of Drying Up

By Amy Zimmer | November 12, 2014 7:42am | Updated on November 14, 2014 4:38pm
 Some brokers have seen a slowdown in foreign buyers and a shift in investment strategies.
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MANHATTAN — Some of Manhattan's top brokers have noticed a slowdown in foreign buyers in the last couple of months as the strength of the dollar rose along with prices of high-end condos.

New development — which often targets the moneyed class of global buyers — saw prices hit an average of $1,807 per square foot — a nearly 29 percent jump from the year before, according to a recent report from Douglas Elliman.

For foreign buyers, the double whammy of the surging dollar and the recent price jumps translate into about a 40 percent price hike in the last six months, said Douglas Elliman's Brian Meier, who has been keeping tabs on the U.S. Dollar Index.

"I have a lot of new development [in Manhattan] that would have been sucked up by foreign nationals a couple of months ago," he said. "That dried up."

There's been a lot of talk about whether the shockingly high prices at the ultra-luxurious condos on 57th Street — known as "Billionaire's Row" — are sustainable, he said. In general, condos priced north of $10 million are lingering longer on the market, sales data show.

At the swanky new condo conversion at 133 Mulberry St. — where, for instance, an approximately 1,544-square foot one-bedroom is listed for $2.895 million — only four of the 18 units have sold since hitting the market last month, Meier said.

"We should have sold all 18 right away," Meier said.

Several months ago, he believes he would have.

Some buyers from abroad — who represent roughly 40 percent of Manhattan's condo buyers, experts say — are shifting strategies.

Now, Meier has heard from residential and commercial brokers working on deals with foreign buyers in the Bronx and Queens. He has a client from Singapore who recently bought three units as an investment in a new development in Downtown Brooklyn. Others are looking at Fort Greene, Bushwick and Prospect Lefferts Gardens.

Since Manhattan developers are paying top dollar for land and construction costs, many have no choice but to charge top dollar.

But Meier is advising developers he's working with to take a step back.

"We priced out the 'Manhattan-style working class' — the doctor, dentist, lawyer, the couple who have two kids," he said, noting plans in March to begin marketing 76 one- and two-bedrooms in a new project at 101st Street and Third Avenue, all of which will be under $1 million.

"We are going to sell to people who live here."

Here's a snapshot of what's happening with foreign buyers.

When the exchange rate matters… or doesn't.

For long term investors — especially from countries less stable politically and economically — exchange rates are often less important, experts said.

When the dollar was weak relative to other currencies, "every day was Black Friday for the foreign buyers," said Warburg Realty's Jason Haber. But, he added, "If you're looking for a safe place to put your money, Manhattan real estate tops the list."

Commercial real estate investors from countries like Canada — the biggest international spender on U.S. real estate — and condo buyers from Australia, for instance, have recently re-evaluated New York sprees, said Patrice Derrington, professor at NYU's Schack Institute of Real Estate.

"The Canadians are certainly vulnerable to the dollar," Derrington said, "and you've seen Australians pull back."

Political instability elsewhere means investors will still flock here.

Political and economic uncertainty around the globe coupled with the economic slowdown underway in Europe and elsewhere will continue to propel foreign buyers, like the Chinese insurance company that paid $1.95 billion recently for the famed Waldorf-Astoria.

"The motivation of a substantial number of investors is to preserve and protect capital," said Peter Kozel, director of consulting services for Cresa NY, a real estate advisory firm.

Weimin Tan, of Rutenberg Realty, said his clients from China want to park their assets here because of government instability, bad air quality and because they want to send their children to college here. He has also seen an influx of buyers from Hong Kong since the protests there started.

Some of his clients are also eyeing the U.S. government's EB-5 visa program, which grants greencards to investors who put $500,000 into development projects like Hudson or Atlantic Yards.

"High net-worth people in China [are] looking to leave," Tan said of the country that might be experiencing a real estate bubble. "China has been slowing down economically."

Uptick in foreign buyers looking at co-ops?

It's not just the Egyptian billionaire who in June bought a $70 million co-op at 960 Fifth Ave., setting a record for a co-op price at the time. Other foreign buyers — who plan on being here for several years — are now looking more closely at co-ops, said Haber, who just helped an Australian land a co-op in an Upper East Side walk-up.

Traditionally foreign nationals preferred the flexibility and privacy of condos, where they can hide names through LLCs, but Haber said, "They feel like they can get the tax advantage and that it's probably cheaper than renting."

That could make things harder for other buyers.

"Any time you have a bigger pool of competition, it's frustrating," he said. "Often times they buy with cash and can close quickly."

Even if demand from foreign buyers remains, condo prices won't necessarily continue to grow.

As supply of high-end condos rises, prices could drop.

High-end condos are sitting on the market longer not because demand is gone but because there are now more buildings to choose from, so the sense of urgency abated, said real estate expert Jonathan Miller.

"Buyers are saying, 'This isn't my primary residence. I'm in no hurry, let me see how this shakes out.'"

As new supply is added over the next few years, Kozel, agreed, "That can reverse some of the increases in valuation."

It might be good for local buyers in the long run, said Derrington.

"I say sit back, wait for the tears [from developers], and then have courage and buy. You should not be competing in this market."