Like politics, all real estate is local. The characteristics of a particular real estate investment can easily move its market price in a direction contrary to the asset class as a whole. Even macro-economic factors such as interest rates and mortgage qualifications which either expand or tighten the overall real estate sector can be overcome by local factors. New York residential real estate is seeing investment trends in these two fundamental ways.
Chinese Private Investors
The first proof in this pudding is counter-intuitive because it is global. Chinese private investors have been purchasing significant properties in New York for several years because they are familiar with New York. It is one of the most well known cities in the world. Their investments have been focused on “brand name” properties in the quintessential brand name city.
There is a reason for this. As an emerging market economy, China has domestic savings that exceed domestic demands for capital. The preferred allocation for these ‘excess savings’, according to Spencer Levy, the head of research for the Americas at CBRE, are large investments that have a strong annual yield. New York real estate meets these criteria better than any other option in the world today.
This trend will continue because of economic and political considerations in China. Domestic consumption in China is slowing down quickly, closing off what little opportunity there was for investment inside the country. Laws designed to keep capital in the country have increased political tensions and have had the unintended consequence of increasing interest in foreign investments.
Of course, Chinese investors do not blindly throw significant amounts of capital into any investment and are not speculating in New York real estate. As prices on their preferred properties increase, they look for alternatives. Recently, they have begun to purchase properties in Queens and are beginning to compete with middle market buyers.
New York Public Transportation
The other factor driving real estate values in New York is absolutely local. More than any other city in America, New York depends on public transportation. It has the lowest percentage of car ownership per household in the country by far. It follows that changes in access to public transportation will impact real estate values.
This will be demonstrated in 2017. Projects such as the Second Avenue subway will impact real estate values on the Upper East Side. Delays in the project mean that the trains will need to be actually running for the average buyer to see the value of these properties. However, once values start to increase it is likely that this market will draw greater attention.
Public transportation will also improve values for South Williamsburg. This change anticipates the scheduled shut down of the line from Manhattan to Brooklyn in 2019. Investors unfamiliar with that project are more likely to miss out on the value proposition of this area.
An announcement last year by New York Governor Andrew Cuomo that he will make public transit a priority showcases the importance of understanding the impact local events can have on real estate values. His intention to improve service and build new infrastructure will impact some areas more than others. Knowing where the greatest benefit will be felt, and when it can be expected, is the type of detail savvy investors seek in order to maximize returns.
It is even possible that the familiarity Chinese investors have with New York residential real estate will combine with changes in public transportation to significantly drive values in certain areas. If this is the case, this sector may see even more substantial increases in value than currently anticipated. Local real estate investment firms, of course, are willing to help any investor interested in benefiting from this possibility.
