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Sancho Panza

New York: Boom Or Bubble?

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I was in NYC recently and had a few chats while there

1) big condo building boom in Brooklyn

2) Lots of moaning about prices for ordinary folk

3) Mortgage availability at higher LTV levels getting restricted.Dodd-Frank Act beginning to have an effect clearly

4) Curse of the foreign buyers pushing prices up and buying to leave.

Whilst tax changes will have caused a rush there is a corresponding spike in commercial builds.Seems quite similar to the story in London.

WSJ 29/7/15

'New York City is entering what could be the biggest building boom in a generation, census figures show, as work gets under way on hundreds of residential projects in neighborhoods across the city.

In the first six months of the year, developers received new residential building permits for 42,088 apartments and houses in the city, according to the U.S. Census Bureau, already more than in any full year since 1963, when nearly 50,000 permits were issued.

The surge in permits this year followed a rush by developers to start foundation work on many residential projects by June 15, in time to qualify for a valuable property-tax abatement that was scheduled to expire.

“There is a lot of digging going on,” said David Schwartz, a co-founder and principal of Slate Property Group, who helped shepherd six apartment projects through the permit process in late May and early June to meet the tax-abatement deadline.

In September, Mr. Schwartz filed an application for a permit for one building, a 12-story rental tower with 148 apartments and ground-floor retail space at 535 Fourth Ave. in Brooklyn’s Park Slope neighborhood, but it wasn’t finally approved until June 1. It is now a roaring construction site.

The strength of the surge surprised many housing analysts, who suggested that it reflected deeper currents in the local economy and housing market.

“This is an astounding figure, so far ahead of anything the city has experienced in 50 years,” said Richard T. Anderson, president of the New York Building Congress, a construction industry group. “We are heading into the stratosphere.”

Mr. Anderson said the permit wave had “all kinds of implications for the city going forward” and would likely lead to a surge in construction spending this year from the $36 billion spent in 2014, which was a 26% increase from the year before.

In June, the city issued 17,804 permits, the census bureau reported, more than the average annual total over the last few decades. Nearly half the permits went to Brooklyn projects, with most of the rest divided equally between Manhattan and Queens.

Michael Slattery, senior vice president of the Real Estate Board of New York, an industry group, called the increase “astounding.” He attributed most of the surge to the scheduled expiration of the 421-a tax abatement program.

The abatement “is an integral part of housing production in New York,” Mr. Slattery said. “When you change a fundamental component, people are going to respond to that anticipated change.”

Wiley Norvell, a spokesman for Mayor Bill de Blasio, said the expiration of the tax abatement usually produces only “a modest bump” and other factors may be in play as well.

“Regardless, this is a city that needs more housing—especially affordable housing—and we are pleased to see so much building under way,” he said.

To be sure, a building permit doesn’t necessarily translate into a completed building, and whether the first half of 2015 is a blip or a trend won’t be known for months or years to come.

Under the tax-abatement program, developers were required to get full permits and begin at least some construction by June 15, but they have until 2019 to complete construction to qualify for the abatement.

A cautionary lesson can be drawn from events in 2008. In June of that year, when permits also surged, benefits of an earlier version of the 421-a tax abatement were expiring. Developers rushed to begin construction, even before obtaining financing. When the financial crisis hit that fall, many projects simply stopped.

“The sense of urgency that led to the spike in new building permits in 2008 did not necessarily result in a corresponding spike in building completions,” warned Mark Willis, executive director of the NYU Furman Center.

Steven G. Kliegerman, president of Halstead Property Development Marketing, said much of the latest wave of development has been for new rental buildings in parts of Brooklyn and Queens, in places that hadn’t seen private development in recent years.'

New York Business Journal 15/8/15

'New York's office building boom approaching 25-year high

Office building construction is approaching a 25-year high, according to a recent report by the New York Building Congress, which projects a particularly flush year in 2018, when multiple large office towers are scheduled for completion.

In its report, the Wall Street Journal sounded a note of caution, saying that while office employment is strong, the actual amount of space office firms take up is less than in previous years. Specifically, the report said, employment levels are at about 2000 levels, but those workers use 9.8 percent less office space. That implies developers might be overestimating how much space the growing ranks of office workers will need.'

The banking classes don't like Dodd Frank..

American Banker.com 31/12/13

'Dodd-Frank Unleashes Predatory Mortgage Regulations

The mortgage market will undergo radical change on Jan. 10, when virtually every aspect of home financing will be commandeered by the Consumer Financial Protection Bureau. The consequences of government overreach for creditors and borrowers will be all too predictable—more costly products and services, fewer options and, worst of all, the erosion of economic freedom.

The cornerstone of this new Dodd-Frank regime is a lender obligation to ensure that borrowers have the “ability to repay” a mortgage. This provision is also the basis of an expansive, new consumer right to sue creditors for miscalculating their financial fitness for a loan. Dozens of new servicing dictates also loom.

Young adults will be among the hardest hit. As first-time homebuyers, they may have limited income and college debt, pushing their DTI above “qualified” status. But they are the very buyers who prompt churn in the market.

The threat of litigation will understandably breed greater caution among lenders and thus further restrict the availability of credit. '

Think Advisor 4/5/15

'Consider these alarming facts:

  1. Real estate is a highly leveraged business. With plentiful loans at zero percent and plentiful investment opportunities in New York City real estate, there is a huge temptation to leverage to the hilt. As a developer, you use 10% of your equity and reap all the benefits of the (very rapid) appreciation. If interest rates creep up, even slowly, some projects will be in trouble.

  2. New York real estate is a tricky business. It's not an accident that so many companies are family-owned, where the tricks of trade pass from one generation to the next. Now, there are plenty of newcomers who have never been tested by a downturn. Increasingly, new developers are foreign-based.

  3. Foreign money has been dominant in pushing New York real estate prices, definitely at the high end, but in the mid-market range, as well. There are plenty of problems with that. The New York Times did an investigative report recently, looking into shell companies that do such purchases. But aside from tax cheats, money launderers and other unsavory characters who come under scrutiny by the authorities in their own countries as well as in the U.S., there is a stark economic reality: With lower oil prices there will be fewer petrodollars sloshing about, and if the Fed starts tightening liquidity, there will be far less cash floating around both in the U.S. and abroad.

  4. Housing markets tend to be stable—even though not rock-hard, as the 2008 financial crisis demonstrated. However, many properties in New York City are bought as an investment and rented out by absentee landlords. Such owners will be quicker to sell if their investment strategy doesn't pan out.

  5. For all the attraction of New York City, and the stream of job creation, it is still a very costly place to do business—and becoming costlier by the day. The American Legislative Exchange Council (granted, a conservative think tank) ranked New York last among U.S. states in terms of competitiveness. As the city gets more crowded and its aging infrastructure creaks on, the quality of life will also deteriorate.

  6. An influx of Chinese buyers and developers should also ring some alarm bells. Three decades ago it was the newly wealthy Japanese who snapped up US properties, including, notoriously, New York City real estate. They soon discovered that they were buying at a peak and had to liquidate their holdings at a trough.

None of these factors alone will spell disaster for the city. But coming together they will, and a Fed interest rate hike—even if very modest—could trigger a market implosion.

The Fed is facing a nasty dilemma. The bubbles are there and, judging by the frenetic construction activity in New York City, they probably can't be deflated in an orderly and painless manner. And, unlike a bubble in the stock market, once a real estate bubble starts to lose air, even resuming pumping money into the banking system won't stop the process. In general, with interest rates already at zero, and fiscal policy effectively paralyzed, the authorities have almost no ammunition left.'


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Some interesting info on this site: http://manhattanmiami.com/resources/tax-legal-issues-foreigners-buying-real-estate/


  1. When buying a property in New York City, what taxes does a foreigner need to pay?

A nonresident alien does not need to pay a specific tax due to their residence status. All purchasers potentially have to pay the following taxes when purchasing a property in New York City:

    1. Mansion tax of 1% of the purchase price, if the purchase price is over $1 million. If the purchase price is over a million then mansion tax is due.
    2. For certain purchases of a new development property, developers, or sponsors typically require the purchaser to pay the transfer taxes on the deal. New York City transfer taxes for properties under $500,000 are 1% of the purchase price and for properties equal to or over $500,000, the transfer taxes are 1.425% to the New York State. New York State transfer taxes are .4% of the purchase price regardless of the value of the property. If the property is not a new development, then the purchaser will not be responsible for transfer taxes.
    3. A purchaser who obtains financing will have to pay a mortgage recording tax. The mortgage recording tax for properties under $500,000: 2.05%, of which .25% is paid by the lender and for properties equal to or over $500,000: 2.175% of which .25% is paid by the lender.
  1. When selling a property in New York City, what taxes does a foreigner need to pay?

A foreign person needs to pay gains tax and FIRTPA withholding tax. Federal Gains tax is currently 15% of the net capital gain. Net capital gain is the amount of the gain on the property with the original purchase price, closing costs, and capital improvements (renovations), subtracted out. Similarly New York State charges an 8.82% non-resident gains tax on the net capital gain.

A foreign seller is also charged a Foreign Investment in Real Property Tax (FIRPTA). The FIRPTA withholding tax is discussed below.

A purchaser who obtains financing will have to pay a mortgage recording tax. The mortgage recording tax for properties under $500,000: 2.05%, of which .25% is paid by the lender and for properties equal to or over $500,000: 2.175% of which .25% is paid by the lender.​

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Edited by Ghostly

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Sounds strangely like London.

New York is different tho.

Quite...On the edge of the NYC built up area you can get a 1500sq ft house for 100k.

http://www.trulia.com/property/3216027033-14-Prairie-Ave-Suffern-NY-10901

That isnt some blacks only ghetto either, whites make up 75-80% of the population in that ZIP, asians and hispanics most of the rest....

http://www.city-data.com/zips/10901.html

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....unlike a bubble in the stock market, once a real estate bubble starts to lose air, even resuming pumping money into the banking system won't stop the process. In general, with interest rates already at zero, and fiscal policy effectively paralyzed, the authorities have almost no ammunition left.'

This is the bit I love :) ie there ain't nothing they can do :rolleyes:

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