Signs of a Slowdown in Luxury CondosBy , , and
Manhattan real estate agent Lisa Gustin listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price by $550,000 in January. “I thought for sure a foreign buyer would come in,” says Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot apartment. “So many new condos are coming up right now. They’ve been building them for the past few years, and now they’re really hurting the resales.”
New high-priced condominiums and mansions are hitting the market in New York, Miami, and Los Angeles just as international buyers, who helped fuel luxury demand in the three cities, are seeing their purchasing power wane with the strengthening dollar. Signs of a pullback may already be showing in Manhattan, where luxury-home sales have slowed amid a boom in the construction of towers aimed at U.S. millionaires and foreign investors. Sales of homes costing more than $2 million in the New York area rose 10 percent last year, compared with a 27 percent jump in 2013, according to CoreLogic DataQuick.
New construction in Manhattan is increasingly skewing toward luxury offerings. This year, 2,386 newly built luxury condos in Manhattan will be listed for sale, the most on record, data compiled by Corcoran Sunshine Marketing Group show. The brokerage defines luxury as units priced at more than $2,300 per square foot. “We’re building a very narrowly defined superluxury product with a fairly deep pool of buyers, but the challenge is going to be the mere fact that it’s all coming at the same time,” says Jonathan Miller, president of appraisal firm Miller Samuel (and a Bloomberg View contributor).
New and resale apartments that went into contract in the fourth quarter for $10 million or more spent an average of 147 days on the market, almost twice as long as in the same period in 2013, according to real estate website StreetEasy. Foreigners account for about 15 percent of total Manhattan sales, but they make up about 30 percent of high-end condo purchases, Miller says. Developers of the skyscrapers One57 and 432 Park Ave. have touted the sales of apartments to buyers from around the world, including South America, the Middle East, China, and Russia.
Across the U.S., the luxury-home market has been healthier than lower-end segments, where buyers of lesser means may struggle to get mortgages. That has enticed developers to build more high-priced homes. On the Los Angeles Multiple Listing Service, there were 3,198 homes with asking prices greater than $2 million at the end of 2014, up 17 percent from the previous year, according to Partners Trust, a Beverly Hills brokerage. The number of homes on the market priced at more than $5 million, including new and existing properties, jumped 27 percent to 546. “They’re shooting themselves in the foot,” says Roger Perry, a broker-associate with Rodeo Realty in Beverly Hills. “Everyone’s trying to get a piece of that luxury pie.”
In Miami-Dade County, about 30,000 condos are proposed, on the drawing board, or under construction in the prime area east of Interstate 95, according to CraneSpotters.com, a consultant. There have been 71 new towers with 19,158 units proposed in downtown Miami since the latest boom began in 2011, compared with 22,200 condos in 84 buildings constructed from 2003 through 2010. “Foreign buyers are the purchasers who saved the South Florida condo market during the last dramatic downturn,” says Peter Zalewski, principal of CraneSpotters. “Ironically, foreign buyers are going to be the ones to push condo prices back in a tailspin because of the drop in commodity prices and weakening foreign currencies.”
Over the past year the dollar has strengthened against 15 of its 16 major peers—the Swiss franc is the exception—because of optimism that faster economic growth will allow the Federal Reserve to raise interest rates in 2015. In the 12 months through Jan. 20, the euro lost 15 percent against the dollar, the pound fell 7.8 percent, and the ruble plunged 48 percent.
In February 2012, a penthouse at New York’s 15 Central Park West was bought for Russian billionaire Dmitry Rybolovlev’s daughter for $88 million. The condo, which cost 2.6 million rubles at the time, would be more than 5.7 billion rubles at today’s exchange rate. “There’s no question the ruble falling as precipitously as it has put a damper on things,” says Marlen Kruzhkov, an attorney with Gusrae Kaplan Nusbaum in New York who represents foreign buyers in U.S. real estate deals. “But it works two ways. There are those people it’s going to prevent from buying. And at the end of the day, there are those people it just reinforces for them the reasons they’re moving their money out of the country in the first place.”
The bottom line: The strengthening dollar is pushing foreigners out of the luxury condo market in the U.S.