Thursday, May 24, 2012

New York, Manhattan property investment returns

Manhattan, New York property investment returns from recent real estate Q & A session.

Brad (Q):  Can you provide an overview of the New York property market at the moment?
Weimin (A):  Manhattan, New York is leading the recovery in the US property market.  As a result, we are seeing high net worth global investors coming back into New York to invest in property.

Q:  Why do you say New York is leading the US recovery?
A:  From a property perspective, New York (Manhattan) has always been the leader.  Manhattan was the last to decline during the recession and the first to recover.  Yes, it is the most expensive market in the US.  But it's also the capital for finance, fashion, culture, tourism and food and these are factors that drive the real estate market.

Q:  Can you provide some context?
A:  From an investment return and risk perspective, Manhattan declined by about 15 percent during the downturn while the rest of the US went down about 35 percent.  Residential vacancy rate is about 1 percent while the US average is 9 percent.  Property prices has shown steady returns of about 10 percent per year net of the downturn.  Of course, 10 percent is not as high as in the emerging market cities like Beijing and Shanghai.  But New York provides a low risk, more conservative investment option.

Q:  We often hear people love living in Manhattan.  Why is that?
A:  The best example for this is where the billionaires, as ranked by Forbes, live.  New York is the #1 city for billionaires and this says a lot about the quality of life and attractions of New York.  The restaurants, Broadway shows, museums, Central Park, fashion are some of the attractions.

Q:  You talked about the people in New York during our backstage chat.  Can you elaborate to the audience?
A:  People - New York attracts the best and brightest from all over the world.  Successful and talented people are driven by meeting and being around other successful and talented people.  Having lived in many cities within the US, I would say intellectual capital is perhaps New York's top differentiating factor.

During my first job out of business school, I joined Citibank in St Louis while a friend joined Citibank in New York and talked about paying $1500 per month to rent a studio.  He had to explain that a studio meant no bedroom.  Back then my $700 rent in St. Louis was for a 1 bedroom in an exclusive residential complex.  I still wanted to move to New York and bear the $1500 rent because we (my friend and I) knew that New York provided much better opportunity to double one's salary and to become successful faster.

Q:  For an investor looking to buy a property, what are the price ranges?
A:  We are specialists in condominiums which are a 25 to 30 percent premium to a cooperative.  Reason is that condominiums provide better appreciation and flexibility in renting out.  In a condo, the buyer and seller do not need board approval to buy or sell unlike in a coop.

For condos, the entry point is $500K for a studio.  One bedroom apartments range from $800K to about $1.3 million, two bedrooms from $1.5 million to about $4 million.  Three bedrooms start at around $2.5 million and can go quite high.  Price is largely driven by location and building quality.

Q:  What kind of investment returns can an investor expect?
A:  If an investor buys all cash, without mortgage financing, the 10 percent (historical) appreciation plus another 3-4 percent per year in net rental yield is a reasonable assumption.

With mortgage financing which is typical in property purchases, the return on investment magnifies to anywhere from 20 to 40 percent depending on the amount of financing used and this in turn depends on the cost of funds of the investor.

Q:  What's the return in context to other investment options?
A:  A 20 to 40 percent return on investment is very good, considering hedge funds perform well at 15 percent return and the US stock market historically appreciates about 2 to 3 percent.  Money market currently returns about 1 percent.

Q:  Thanks, Weimin for your time.
A:  You're welcome.

Weimin Tan, Founder of Castle Avenue Partners, is a Manhattan property broker specializing in condominium apartments to investor buyers.  He recently appeared on NY1 News on hiring a buyer's broker.  Weimin speaks English, Cantonese, Malay and conversational Mandarin.  He can be reached at