January 6, 2009

New York Luxury Condominiums Start to Feel the Pain

Luxury Condos in Brooklyn go Rental

New York is starting to feel the pain of the financial crisis. Lagging a little behind the overall national market, the job cuts in the financial services industry are now starting to take their toll. The median price of Luxury condos in Manhattan fell from $4.3 million to $4.13 million in the last quarter of 2008, while inventory rose 26 percent to 1,730 apartments. Luxury condos also stayed on the market for an average of 169 days, compared to 117 days in Q4 2007. The luxury segment is defined as the top ten percent of the market by price.

Condominiums in the financial districts, built to attract wealthy foreigners and over-paid bank executives are likely to see the biggest falls in prices, as mortgages to foreign nationals have all but dried up and the banking sector sheds more staff in 2009. There are estimates that between 165,000 and 175,000 jobs will be lost, which is certain to have a negative effect on prices.

Once again median sales prices rose in the overall sector, but this is largely due to a few high dollar transactions at the top of the market, while other areas stagnated, with transactions dropping 9.4 percent compared to 2007.

The current trend in New York is for buildings previously offering condos for sale to switch to rentals instead. Much to curbed NY’s shock and horror, Holy New Year’s shit – One Hanson goes rental, One Hanson Place, an extremely expensive, up-scale condo development in the old Williamsburgh Saving Bank building in Brooklyn has now been offered as rental units. Prices at $3,400 – $4,900 a month, Ouch!

One Hanson is a combination of bad timing and over-pricing. Either way, it speaks volumes that a building of this calibre is now up for rental. Offering arguably the best views in Brooklyn, the building was “creatively,” refurbished, although there was some considerable crtiscism of the project as it progressed. The developers used non-union labor on the building and opted for a “Borders,” in the beautiful lobby. Seeing as the area immediately around the building is likely to be a part-finished job site for the foreseeable future, despite lavish claims that 70% had been sold back in January 2008, there have been several minuscule price reductions which failed to stimulate sales.

Taking $12,000 off the asking price of a $400,000 condo is not likely to make the slightest difference. Many new developments have been refusing to reduce prices, and I still maintain that the only way to stimulate the market is by developers adjusting to the new reality and pricing appropriately. I am pretty sure there is not enough up-scale rental demand for the staggering array of luxury condos being converted to rental units at the moment. If they are having trouble finding buyers able and willing to pay a $5,000 a month mortgage payment, where are the renters able to pay the same rental? Elsewhere in the country (and the world), developers are beginning to “see the light,” and price luxury property realistically, but I think we may have to wait just a little longer in New York.

I do wonder if they ever did get the clock working? If you know, please leave me a comment.