Monday, 23 February 2009

What's happening in real estate in Manhattan?

Manhattan, the global financial center, is hurting quite badly in terms of job loss and economy.

As for the residential real estate, New York market performed "ok" compared to bubble area like California, Nevada and Florida. In fact, Case-Shiller Index has shown 12 month decline of 7% only. However, due to this financial crisis, residential real estate market in Manhattan has begun to feel the major pain.
Below is the article from Barron's regarding the price drop of $5 million+ luxury real estate in Manhattan. While it has decline by 20% compared to market peak, many industry professionals expect further 30% decline before it stabilizes.

Manhattan On Sale
Manhattan's luxury real-estate market is rotting, as Wall Street layoffs and tight credit squeeze demand. Why prices could slip another 30%.

Reasons are:

- In NYC, financial jobs represent 8% of total employment and 22% of total salary. It is forecast that NYC will lose additional 50,000 financial jobs. And among those with jobs, salary will drop further.

- It is extremely difficult to get mortgage on luxury property.

- While transaction has declined by 40%, inventory has increased by 60%.

- Due to strong US dollar and slump in overseas economy, foreign investors purchase of Manhattan properties has stopped.

- Super wealthy have lost significant asset - thus tightening belt on luxury spending.

Since many financial firms have received TARP fund from US government. Employees in these firms will see major decline in bonus. In addition, hedge fund, major buyers of luxury real estate, lost 2/3 of managing asset over last 12 month. While ago, many researchers predict that wealthy segment continues frivolous spending ---- but that seems to be things of the past

Below is article from Wall Street Journal regarding massive sell off of executives in financial firms on luxury real estates.

Hot Words in Finance: 'For Sale'
A flock of fine mansions listed; Bear Stearns 'stuff hit the market'

However, not all segment of real estate in Manhattan is falling. Studio segment, suitable for first time home buyers, are performing quite well. As government has announced $8,000 tax credit for first time home buyers. I think entry level properties in Manhattan go through this period without major scratches.

While the Housing Market Drops, Studio Sales Rise

Happy Investing!!!!!

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