Tax Policy Changes and Consumer Uncertainty Continue to Drive a Soft Market
The Third Quarter of 2019 ends on 9/30. Following up on our September Market Update Blog, the residential real estate market continues to react as consumer uncertainty is driven by tax policy changes in various areas:
- The 2018 change in Federal tax law that effected State and Local Tax (SALT) deductibility. This is a very New York City area issue where real estate taxes are high and the $10,000 SALT limit is material.
- Increased Mansion taxes for all units selling for $2 million and above.
- Recent rent law changes and its unintended consequences.
- A possible implementation of a pied-a-terre tax.
All of these changes cause a recalibration of the market as sellers and buyers wait to see the effect of these tax policy changes on the market. With time, the market will stabilize around these changes as consumers figure out their effect. The tax policy changes have caused a policy driven correction which is unlike past cyclical downturns.
The residential real estate market continues to be very segmented depending on price and location. The overall market is down 10% to 15% from its peak in 2014 to early 2015. The new development market experienced the biggest decline where activity was 15% of the peak market and has declined to around 7% of the market today. The highest priced real estate has seen declines from 15% to 40% for super luxury. Conversely, units priced at $2 million and below have seen little to no declines driven by historically low mortgage rates.
New Developments Are Offering Enticing Incentives to Drive Sales
As a result of the softness in the new development market, buyers are being offered significant incentives to purchase. One incentive of note is Extell’s One Manhattan Square rent now, buy later offering.
As buyers think about this type of incentive, it is important to consider if rent-to-own makes sense in NYC. Whether these arrangements make sense for buyers is a matter of debate, and circumstance. Here is an interesting article that outlines considerations, read here.
Get the full Q3 Manhattan Real Estate Market Report, here!