Wait-and-see. For many foreign buyers whose fortunes hinge on the outcome of the European debt crisis - even those who aren’t from Europe - these words neatly sum up their attitude towards the future. This potentially disastrous impasse threatens to slow sales of luxury condos in Manhattan even further, but who can blame people for waiting? The fate of the world’s economy is up in the air. In case you’re wondering why this is immediately relevant for us, look at the numbers: foreign buyers made up one-third of sales in Manhattan over the past year, and from March 2010 - 2011 8% of home sales nationwide came from foreign buyers. In other words, foreign buyers have been keeping the Manhattan luxury condo market afloat, so this wait-and-see attitude could prove to be devastating; the market is already bogged down in a sales slump. However, new legislation introduced in the U.S. Senate might stimulate sales of luxury condos in Manhattan to unprecedented heights, if it passes. And that’s a big if.
In October, Utah Republican Mike Lee and New York Democrat Charles Schumer introduced a bill that would give foreign buyers who pay at least $500,000 in cash a temporary “homeowners” visa, provided that they pay U.S. taxes and live here for 180 days out of the year. The visa would be renewable every 3 years. The implications for the Manhattan luxury real estate market are profound: Manhattan is already a popular destination among foreign buyers, so the likelihood of a market surge is very high. All-cash foreign buyers in Manhattan are already common due to a loophole in credit checks - even though they’re often bankrolled by mortgages from their home countries, there are no rules requiring them to disclose such loans. This is true only of condos, however; rigorous approval standards have kept internationals from buying Manhattan luxury co-ops at the same frequency.
It’s clear that a lot hangs in the balance here, but knowing the speed at which the U.S. Senate operates, the focus remains on the time being. Foreign buyers will be skittish as long as the eurozone remains in imminent danger of collapse, but the silver lining is that this unease will definitely put pressure on some to invest in New York luxury real estate. For example, buyers from countries like Greece and Italy are purchasing luxury condos in Manhattan as safe investments. On the other hand, wealthy foreigners from more stable countries will be much more likely to wait until a substantive resolution to the debt crisis emerges. Either way, the illusion that the Manhattan luxury real estate market is a world unto itself is fading fast: clearly, our market is not just tied to the world market as a whole, it’s dependent on it. All we can do is wait-and-see.