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5 Things You Need to Know About How Foreign Buyers Affect Local Real Estate

By Amy Zimmer | January 26, 2016 7:12pm
 Sales in the $20M range are slowing, but many foreign buyers are hunting for up to $3M, brokers say.
8 Things You Need to Know About Foreign Buyers in New York City
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MANHATTAN — As world economies and political situations shift, so too do their influence on New York City's real estate market.

Much has been made of the effect of foreign investors on driving up New York real estate prices, with some local real estate companies specifically soliciting foreign buyers for upcoming projects before soliciting New York residents.

The U.S. Treasury Department recently announced that it plans to mandate the disclosure of the identities of previously-secret buyers of Manhattan homes costing $3 million and above — which realtors fear could quash their likelihood of buying here.

There’s no hard data on how may foreign buyers there are in the city’s market, but real estate expert Jonathan Miller estimates they make up about 15 percent of all buyers here, though for new development, it’s higher — likely around 40 percent, he said.

Here’s a snapshot of what foreign buyers are doing in New York right now.

1. Some foreign-based luxury home buyers are helping to drive down the price of luxury rentals.

A wave of condos where foreign buyers purchased — as investments to rent out — are flooding the rental market, causing a glut of high-end listings as other high-end rental buildings are simultaneously opening, said Karla Saladino, managing partner at Mirador Real Estate.

“We’re seeing major price drops below last winter’s rent," she said of rentals.

For instance, when marketing a “stunning penthouse” in the Flatiron, Saladino looked at comparable units for pricing information. Usually, she’d find about four similar high-end units. This time she found 48.

2. Chinese investment appears to be slowing down, but developers are still marketing NYC projects in Asia before promoting them here.

Although the Chinese economy has been slowing, and new regulations from the Chinese government is curtailing how high net worth individuals can invest, several big Chinese development firms are making headway in New York real estate.

The company Vanke is doing a joint venture with Aby Rosen for a Midtown condo at 100 E. 53rd St., and XIN Development is building the Oosten in South Williamsburg, according to Wei Min Tan, a broker with Rutenberg.

Other new projects are marketing in China, Malaysia and Singapore before advertising to locals, including Extell Development’s 71-story tower — with homes expected to cost between $1 and $3 million — rising over a former Pathmark site near the East River on the Lower East Side.

A condo being developed at 327 E. 22nd St., is also being marketed in Asia.

“It’s not on the broker database or Streeteasy, but there’s full-fledged marketing materials in Chinese,” said Tan, whose client from Hong Kong received such materials.

3. With slowing demand from Russian investors, firms are expanding beyond big cities to solicit new prospects.

Looking to fill the gap of some Russian investors, many U.S. law firms and developers are now visiting destinations they would have previously ignored, said New York City-based real estate attorney Petro Zinkovetsky.

“A couple of years ago there were so many buyers from Russia and Ukraine that no one ventured outside [Moscow and Kiev]. Now with slowing demand, people are starting to think outside the box,” said Zinkovetsky, who recently did a presentation in Kharkov, the second largest city in Ukraine.

With the devaluation of their currencies and ongoing conflicts in their corner of the world, many elites from these countries are looking for an alternative to an off-shore bank account, Zinkovetsky said. And while they can’t pay $20 million or more for a “trophy” house they’ll barely use, they are looking for “practical” investments in the $1-$3 million range, he added.

4. Foreign luxury buyers are now checking out more modest price points.

Zinkovetsky said one client of his, a Ukrainian businessman, who would likely have bought a $10 million condo a year ago is currently looking for an $5 million apartment in Manhattan and a $5 million commercial property in Brooklyn's Kings Highway that will pay the expenses for the apartment.

He said that as foreign economies fluctuate, many buyers want a back-up place that they can rely on.

“If a person needs to leave everything behind and relocate," Zinkovetsky said, "there’s a commercial property to generate income.”

5. Those willing to drop big bucks on pied-à-terres are finding townhouses are a better bargain.

There’s been an uptick in foreign buyers wanting townhouses as pied-à-terres rather than new condos, said Robert Dankner, of Prime Manhattan Realty, who’s been working recently with clients from Great Britain, China and India.

With companies like Top Hat Home Services offering everything from paying utility bills to ensuring a stocked fridge when you arrive — at a fee that's less than condo maintenance — buying a townhouse has become more appealing, Dankner said.

Plus, the average price per square foot might be $3,400 on a townhouse while a new condo could be more than $4,000, he said.