With a large influx of high-end condos hitting the New York City real estate market, investors are wise to get choosier on their property picks, analysts say. The current market doesn’t fare to quick turnaround profits as it did a few years ago, when condo flippers could expect 30 percent profits. Still, in 2015, the average deal netted a 15 percent profit, according to Crain’s New York Business.
According to StreetEasy’s 2015 Q4 Market Report, the number of homes within the luxury price tier, or the top 10 percent of the market, grew 1.4 percent between Q3 and Q4 of last year, from 21.3 to 22.7 percent. While inventory in the category is increasing, the number of pending sales decreased between quarters by 0.8 percent, from 11.1 to 10.3 percent of the total market share of pending sales.
Overseas developers respond to Manhattan’s saturated market
Chinese developer Xinyuan Real Esate Co. acknowledges the oversupply of Manhattan luxury properties and is responding accordingly. Instead of developing yet another high-end condo project, Xinyuan is designing apartments for $2,000 a square foot, which is far less than the $2,775 average in new developments across Manhattan in 2015, according to Bloomberg. The property is located on 10th Avenue, between 44th and 45th streets, and is being marketed as a boutique, mid-tier property. The developers expect 30 percent of buyers to be Chinese, similar to the Oosten, Xinyuan’s Williamsburg waterfront development.
Price cuts on condos in recent months
Manhattan is seeing frequent price cuts in the high-end market thanks to high inventory and tapering demand from luxury buyers, who now have the ability to shop around at a leisurely pace. More options place the ball in the buyers’ court — and create some panic on the sellers’ end — especially as new developers struggle to sell the remaining vacant properties in their well-appointed high-rises. This month, Donald Trump reduced the price on his condo by about a sixth of his original asking price, according to StreetEasy. The Republican presidential hopeful listed his property for $16.7 million in early December, but it closed for $14.1 million instead.
Outlook for condo flipping in 2016
Sales prices are dipping, but not uncontrollably. Investors can still make profits, just not at the rates they might have seen in the past. As the high-end market adjusts to overfill of development from the past few years, developers (both local and overseas) should practice patience with their returns on investments. Keep in mind, too, that construction costs in Manhattan make it more difficult for development companies to buy relatively cheap and sell big.
Although 2015 was a downturn year compared to 2014, the Manhattan market is still strong. Sellers are less likely to get their full asking price right away, but as previous reports have noted, many condos in Manhattan deemed overly steep were reduced in early 2016 — allowing more buyers to make offers on top-tier listings in Manhattan and keep vacancies low.
