Luxury Real Estate Succumbs to the Law of Supply and Demand

The number of luxury apartments in New York City has seen a skyrocketing rise recently. For instance, there are almost 300 new apartments costing about $5000 per square foot located around a seven-block stretch of 57th Street that are either currently up for sale or will be very soon, most likely in the next 24 months.

Data on luxury real estate in 2013 shows that the volume of sales was about 55 transactions for the year. In the year 2015, however, data showed that the sales of luxury real estate closed at a lower rate of 47 transactions for the year - down by 8 transactions from just two years earlier.

Developers and brokers are expecting the number of transactions for this year to be even lower. This they believe is due to the slow growth of China’s economy, coupled with the falling prices for oil and other market commodities, causing ultra-wealthy investors to become more cautious about spending. This drop in demand is leading to a glut in the luxury market as prices for land, apartments, storefronts and hotel rooms have gotten too high. The result has been a sudden slowdown in the luxury market.

The dangers and risks of focusing solely on the super-rich have become apparent. Some developers have begun cutting prices while others are looking into dividing up larger units and selling them off as smaller apartments. Also, recent plans by one developer to convert a hotel into a luxury residential tower have been shelved.

The effects of the pursuit of oversized profits are already beginning to show. Retailers are beginning to take a step back as landlords around Madison Avenue have increased rents up to $2000 per square foot. The cost of occupancy is now through the roof, making profits more difficult to achieve for retailers. Some storefronts are may become vacant as occupants search for cheaper real estate elsewhere.

Please visit us at: www.RubenPerezNYC.com

A Downward Trend for Luxury Assets In New York

The year 2015 was a banner year for the ultra-wealthy. It was a year in which the rich set records for their luxury real estate investments and high dividends. For instance, a Manhattan penthouse was sold last year for a record $100 million, while a Picasso was auctioned for $179 million. With the start of the new year however, the situation seems to have changed dramatically. On the heels of record prices set the previous year has come a surprise reversal, where values of assets that appreciated in the just previous year have dropped, and we are now experiencing a downward trend. This has resulted in various price reductions, several auction deals going unsold and a growing inventory of unsold high end real estate.

There are a number of factors contributing to the sudden decline in the demand. Some of these include: the slowing Chinese economy, the prospect of increased interest rates in the US and the collapsing price of oil and other essential commodities. These factors are enough to make the high-spending ultra-rich from China, Russia and Brazil much more cautious.

The change has led some luxury real estate sellers in Manhattan to slash their prices. Despite several cuts and reductions, properties have been left unsold. Those that bought luxury real estate with the intention of flipping for higher prices this year are likely to be disappointed, as these investors have missed the peak of the market. This is evident in the sale of an apartment that was bought for 20.3 million dollars last year which is now being sold for a loss of 2.5 million dollars this year. While this situation illustrates New York’s present real estate market, there are similar trends in other cities of the world, especially in London which has experienced a notable decline in luxury properties sales.

Please visit us at: www.RubenPerezNYC.com

Aspirational Pricing: A Major Factor Slowing the Luxury Real Estate Market

A lot of people have attributed the sluggishness of the New York City luxury real estate market to the principles of supply and demand, with abundant supply outpacing increasingly limited demand. But there may be other factors contributing to the recent slowdown in the luxury sector of the market. These additional factors include over-hyped prices by developers, unrealistic expectations by investors and smaller Wall Street bonuses.

The luxury real estate market in Manhattan experienced seven consecutive months of decline in price after a peak in the middle of 2015. As a result of slowing sales, the median time of properties on the market was extended to about 131 days. There is still the belief by most people that the slow pace of real estate market is due to excess supply, which does indeed seem to be the case. But contributing to this excess supply are the over-inflated prices at which properties are being listed. These lofty prices are drawing more supply into the market, as owners will be more tempted to try and sell due to the lure of huge potential profits. This aspirational pricing model is creating excess supply for which there is insufficient corresponding demand.

Developers and investors have benefitted from rising prices in recent years to derive huge profits. But lately they have been struggling to sustain this level of success. At the same time, demand has been affected by a variety of factors including unfavorable economic conditions abroad. For properties and other assets to be sold off in a reasonable amount of time, the pricing needs to be set according to demand. An increase in the supply of luxury housing combined with reduced demand has resulted in the slowing of Manhattan real estate sales. More realistic pricing is the surest way to revive sales in the luxury segment of the market.

Another factor that some claim is contributing to the real estate sluggishness is the reduction in the average bonuses given to Wall Street bankers. There was about a 9 percent reduction in these bonuses in 2015. The smaller bonuses are due to the decline in profits on Wall Street last year, the lowest since 2012. While this decline is accepted as a factor affecting the drop in luxury real estate sales in the city, New York City real estate is still one of the safest havens for investors. It is entirely likely that as prices in the luxury segment come down to more realistic levels, demand for these properties will revive.

Please visit us at: www.RubenPerezNYC.com

New York Is The World’s 7th Most Expensive City

According to a recent report by the EIU (Economist Intelligence Unit), Singapore has been rated the most expensive city in the world. Singapore has been in the top most position for three consecutive years according to the report. It was followed by Zurich at second and Hong Kong at third. But in this latest annual ranking, New York City and Los Angeles have now entered the top 10 most expensive cities in the world. The higher ranking this year for both cities is largely due the increasing strength of the U.S. dollar. And it is entirely likely for both New York and Los Angeles to retain their spots in the top 10 in future rankings if the dollar continues to maintain its strength against other currencies.

Over 400 prices from 160 products and services were compared to determine the cost of living of each city. Everything from the price of gasoline at the pump to the cost of a loaf of bread was studied. The survey shows that for New Yorkers, the major factor increasing the relative cost of living is the power gained by the dollar recently, the effect of which is a rise in the prices of goods, services and other essential commodities compared to neighboring countries.

From New York’s position at 22^nd on the list in the previous year, it has risen to 7^th this year, and is about 20 percent more expensive than the average major American city. Other American cities appearing on this year’s list include Los Angeles next after New York at 8^th, Chicago at 21^st, Washington D.C. at 26^th, Houston at 31^st and San Francisco at 34^th. It is not surprising that New York took the higher position in comparison to these other American cities because it has always been the first choice of tourists, businesses, investors and other visitors.

Please visit us at: www.RubenPerezNYC.com

Stagnation in New York Real Estate Market

The U.S. economy continues to be on the upswing, with dramatic improvement since 2009. But the federal government has classified New York’s real estate market, especially the high end of the market, as being a bit stagnant. This is enough to cause the government concern, because the progress of the real estate sector is an important component of overall economic progress. And when other sectors are fast growing but one is lagging behind, it calls for attention. This is exactly the situation for NYC’s real estate market right now.

What factors could account for this? Could it be that people are experiencing financial hard times? Are individuals gradually diverting their attention away from real estate to something else? The questions are just so many and complex that it’s difficult to pinpoint the problem precisely. The only obvious thing is the fact that the luxury real estate market isn’t as fast-moving as it used to be. Perhaps people are trying to conserve in anticipation of rainy days ahead, instead of spending on luxury apartments.

Reports have shown that the city’s sales of both condos and co-ops have been rather slow right from the start of the year.  As far as rents of Manhattan apartments are concerned, they have been ranging between being steady to being slightly lower than the previous year. Rents in both Brooklyn and Queens have increased, but at slower rate compared to 2015. Both the rental and the purchase markets of high end real estate have experienced sluggishness indicating excess supply. This has been the general observation all over the city for high end units.  The reason for this market stagnation is the presence of too many high-end luxury apartments, in excess of the demand for them.

Please visit us at www.RubenPerezNYC.com

The Price of NYC Luxury Real Estate: Has It Become Too High?

The present real estate luxury market in Manhattan is in a kind of a pattern that doesn’t seem to be ending any time soon; that of buildings and prices that are on a continuous ascent. What seems to be the initial cause of this is a hugely expensive building that was developed around the Midtown area. It then seemed as though all hell broke loose, and developers suddenly decided to join the bandwagon to begin developing more and more of such buildings. The scramble by developers for wealthy clients looking to invest in ultra-exclusive property began.

There are a number of tell-tale signs that after several years of this race by developers, the mad dash is dying down. Reports suggest that things are cooling off due to the probability that a supply glut is facing the city, as it certainly seems that there is more supply of these ultra-expensive properties than there is demand for them. This is due to the current global economic uncertainty facing the major foreign buyers of this type of luxury real estate. Here are some pointers that tend to indicate that a supply glut is coming very soon.

At present, there are a whopping 300 luxury real estate apartments in New York City that are either currently on sale or scheduled to go on the market in the next 24 months, with each of them going for a pricey $5,000 or more per square foot. In the year 2014, 55 high end units were sold, but in 2015 the number dropped by 8, to 47 units sold. Units priced at around $5,000 per square foot are alleged to account for a little less than 1 percent of condo sales.

What this almost certainly means is that developers might soon bring an end to the ultra luxury building boom, putting a damper on the whole super-high-end-luxury trend. This assumption supported by recent unsuccessful efforts in the luxury market, such as the dropping of plans to convert some pricey New York City properties to condos.

Developers of a number of the choicest high end apartment buildings have begun reducing the prices of their properties, while others are dividing their larger units into smaller units and selling them off at cheaper rates. These all tend to point to the fact that there is a supply glut in the market. Despite these recent events, there is still a plethora of high end real estate property in the pipeline, and for now the glut continues.

Please visit us at:  www.RubenPerezNYC.com