New York City’s ultra-luxury real estate frenzy is coming to an end, as a construction boom aimed at buyers willing to spend $10m (R144m) or more, has flooded the top-end of the market just as global market turmoil causes wealthy investors to retreat.
And it is not just volatility in the financial markets that is dampening high-end spending, other factors include the tightening of restrictions on capital outflows from China, the UK’s Brexit vote and the slump in oil prices, which is curbing wealth in the Middle East.
According to analysts, the extreme price tags attached to New York’s trophy homes never really bore much relation to actual value. Instead the primary force behind the soaring prices was a class of wealthy individuals who chose ultra-luxury real estate as their investment asset of choice – as property was less volatile than other investments.
“After the 2008 global crisis, many ultra-high net worth investors turned to high-end real estate across the globe as a safe place to store their wealth.”
During the first half of 2016 the number of contracts signed for Manhattan apartments priced at $10m or more fell to 107 units – an 18% decline from the 130 units sold during the same period last year.
As the volume of sales at the top-end of the property market has dwindled, some sellers have had to accept severe price cuts while other projects have been delayed.
Developers who are unwilling to move from their original asking price are either remodelling their product (often subdividing large apartments) or casting a wider net to reach more potential buyers.
It often takes a while for sellers to adjust to a sudden change in the market. As one analyst noted, it is not that there are not any buyers at this level, it is just that there are no buyers willing to pay 2014 prices.
Even as sales over $10m drop off in Manhattan, the bulk of the market remains robust – with competition particularly strong for homes priced under $3m (R43m).
New York is not alone in experiencing a slowdown in ultra-luxury sales. After the 2008 global crisis, many ultra-high net worth investors turned to high-end real estate across the globe as a safe place to store their wealth.
However, since mid-2014, ultra-luxury property values have declined in Paris, Singapore, London, Moscow and Dubai, according to PGP strategic partner, Savills. While these cities acted as a store of wealthy in the wake of the global financial crisis, Savills believes that the current decline in values is an “inevitable setback” that typically follows a long bull run.
