Why New York Real Estate Is the New Swiss Bank Account
nymag.com
nymag.com
The same story is playing out in London as well, with the consequence that many central flats lay empty most of the time, owned by foreigners who would rather lose out on some rental income than risk the hoi polloi damaging their artwork.
By the way, in NYC it is usually not as hard to find the true, human owner(s) of apartments purchased by "corporations" as the article implies. It takes more than a quick Google search, but the information is usually around if someone wants to know about a particular unit.
It's really quite depressing being in the top few % income wise but not having a hope in hell of competing with the global market and the people taking on reckless levels of debt. Our housing markets are broken on so many levels.
I feel like the global elite are a nasty job being passed around. No country or generation or group of people wants to be the one that stops (possibly with major bloodshed) and ends them, but someone will have to, and it's a world-scale undertaking.
Anyways, this is why I advocate a "use it or lose it" philosophy toward assets in general. Not much unlike how many cities will cut your bike off of locking stations if it hasn't moved in a while and send it for recycling or to bike advocacy groups (usually after scrappers get their pound of flesh).
However, when you have a large block of units for sale (1000 condos), and want to sell them as quickly as possible so that your construction financing gets approved (and you're probably worrying about a crash), you want to "price discriminate", which is to charge different prices for the same good.
If rich overseas buyers will buy all 1000 at $500k each, then great, but if they want to buy only 900 and a local is only willing to pay $450k for 100, then take the 900x500k and 100x$450k, there's no need to let the overseas buyer know that you sold the same thing to a local for $450k.
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I think municipalities and local governments ought to make it really hard (or ridiculously expensive, even for the .1%) to own a place in tense areas without either living in it or renting it.
This doesn't help if you want to encourage rentals though.
it's like the phrase "fulsome praise". Can't really use it. is it lavish, or overdone/excessive?
</pedantry>
This pedantic objection is just another reason not to ever use the phrase. You just can't. :)
May sound weird but thats only because people have been using it incorrectly for so long.
Also, if you can buy in or near a "fortress" area like Manhattan or San Francisco, and you'll never need the cash, you can just wait for the next bubble if prices/rents collapse.
edit: reading more of this, I'd say the dumb money is going towards extravagant luxury, though. Those $30M apartments could fall to $3M and never rise again. I'm talking more single-family housing, and those buyers have actually slowed down considerably lately because prices have gotten too high.
edit2: I've been drawn in - this is a very good article. The tl;dr is that world scum is using NYC luxury real estate to launder money and avoid taxes. What I thought was "dumb money" is dictators, oligarchs, etc., who aren't looking for profit, just trying to get their ill-gotten gains out of their home countries.
I'm amazed at how few people sit in that strata - $30 million gets you into the Top 0.0024% of the world's population. While it's twice my (inflation-adjusted) financial goal, I still would have thought a larger number of people would be there.
Perhaps this fails to account for assets spread across a number of corporate entities?
$30 Million is certainly "fuck you" money. Assuming anyone with that amount has 30-60 more years to live (e.g. is 40-70 years old), that means they could spend at least $500,000 per year, or $1,369 PER DAY for the rest of their life.
That is more than my monthly rent. They can spend that per day. And, AND they don't have to work all day. They could volunteer, run propaganda campaigns, get high, research stocks, play guitar, learn Swift, paint, ANYTHING.
Well, except buy a new car every day. If you want a Lamborghini, at ~$120k, you'll still have to "save up" for 85 days! So it's not the absolutely, mind-bogglingly, helicopter-dogfight rich. And you certainly couldn't go nuts with art:
You couldn't even buy the cheapest painting on Wikipedia's "most expensive paintings" list. [0].
[0] http://en.wikipedia.org/wiki/List_of_most_expensive_painting...
Anyway, I'm glad there are less than 170,000 people who don't have to do anything at all to live.
Don't have to do anything at all to live better than everyone else in the world, that is. There are a lot more who are dependent on various safety nets. We're cutting food stamps, because we think they shouldn't eat as much.
Neither necessary nor sufficient. It's easier to get that kind of money if you ware born into a small elite in a resource-rich and/or poverty stricken country.
Which is for the best, because then I likely would have ended up supporting Chelsea in the English Premier League.
[Edit] Further to pessimizer's reply below, but responding here so the thread doesn't disintegrate. Note that the only reason I raised "first world democracy" was because Alex raised how "privileged" I am. My "privilege" is where I was born, and that was in a first world democracy.
I think I completely agree with your point that being born where I was doesn't of necessity deliver me $15M or $30M, which is why I keep putting "privilege" in air quotes.
result of random google: http://www.huffingtonpost.ca/2012/06/12/countries-with-most-...
reply to edit: I'm trying to say that the privilege that makes you 15-30 million is something other than simply where you were born, not that it doesn't exist. That's why I'm not putting scare quotes around it. Being born in a kleptocracy if anything makes you more likely to have 15 million, rather than less.
>In New York, by contrast, buyers of new construction often qualify for a tax abatement. At One57, currently the city’s most expensive new address, the tax break amounts to around 94 percent. A Times analysis estimated that its priciest penthouse, which is reportedly in contract for more than $90 million, would initially be billed less than $1,500 a month.
So basically, the foreign absentee buyers of these luxury buildings are able to avoid paying property taxes on most of the assessed value, forcing the "regular" residents or landlords to pay more than they would otherwise have to if these apartments were taxed at the same rate.
I think the policy of granting tax abatements for developing affordable housing is nuts, but some of that $90 million was used to help the working class.
Redfin recently released a housing report[0] that acknowledged the recent "recovery" as fueled by investors, regular home buyers are still on the sidelines. This is clear to me via anecdote, I've heard from friends and online forums from people in the JP area where multi-families are being bought in droves by corporate landlords. It seems to me that the historical pattern of real estate transactions being between generations and socio-economic classes will be no more. If the corporate landlords want to sell, they'll be selling their portfolios to other investor types. I wonder if in another 20 years we will have an exodus to the 'burbs similar to the 50's and 60's.
[0] http://www.redfin.com/research/reports/real-time-price-track...
Why is New York real estate valuable in the first place? Because a lot of people want to live there.
Why do they want to live there? Because there's a lot of other people there, and those people can afford them various opportunities in their chosen field.
If New York becomes a wasteland of empty apartments held by overseas billionaires, none of the people that make New York a desirable place to live (and thus, a valuable apartment to own) are going to be there making it desirable (and thus, making the apartments valuable).
Everyone I know who's living in New York can't wait to leave. It's a miserable place to be unless you're a billionaire. These people are destroying the value of their own investments just by making the investment in the first place.
No chance of this happening. NYC has over 3 million housing units. There are many fewer overseas billionaires, fortunately.
I own and occupy a 2-bd 2-bath condo in NYC. It's in Central Harlem and I love it here. I have no thought of moving and am not worried that Russian oligarchs are going to turn the city into an empty wasteland.
Real estate prices in Manhattan are heavily influenced by neighborhood naturally and, on the very high end, signature amenities such as wrap-around terraces and views of Central Park. But we're talking about 10,000 ultra-high-end units out of 3 million across the 5 boroughs.
In my Manhattan neighborhood, even new condos in full-service concierge buildings are vastly more affordable than the small slice of luxury units described in this article. The price per sq ft in Harlem is one-third of what NY Mag is talking about.
I say, let the billionaires blow their dough on my town. Their market is small and finite; long-term consequences are small. Meanwhile, the rest of us, a vast number in comparison, as a result will see our home values appreciate a little faster over the long run, probably.
This has already started! [1]
[1] http://www.theonion.com/articles/84-million-new-yorkers-sudd...
After 3 years, I'm moving back. I've gotten over the issues that were bothering me about New York and realized that my success in the city will require me to work for it. Where I ended up is a much more miserable place to live.
I couldn't be more excited to go back to NY. I had the native's perspective (grew up in Midtown) and now I'm getting the transplant's one by moving back.
Non-billionaire, btw.
Don't worry, they'll take only the good ones. Surely there will be plenty of space left for the rest of you! Who's gonna do the non-billionaire stuff otherwise?
"There is nothing illegal—at least from the destination nation’s perspective—about sending money from an anonymous offshore bank account to purchase property in America. On the contrary, it’s an everyday occurrence. That is precisely why experts say that property investment is a favored route for money laundering, a crime that depends on the outward appearance of legitimacy. The laundering process typically happens in stages: Illegal cash enters the world financial system somewhere and is funneled into a maze of accounts and shell companies, a process called 'layering.' Finally, at the other end, funds are integrated into a seemingly respectable investment—like a luxury condo."
(TFA)
Take Vancouver, Canada real-estate market, for example. It's the closest Canadian city to Hong-Kong / China, it's friendly to foreigners buying properties and it has a sizable Chinese population that can act as a proxy if needed. The house prices were inflating from late 90s. In mid '00s it became a common understanding that there's a bubble. A modest 500 sqft flat in downtown Vancouver was going for close to 500K and proper houses in decent areas were in 2-3 million range. Our place appreciated over 100% in a matter of 4 years. Tons of apartments in downtown and new condo developments sat empty, which was especially easy to tell at night. But the bubble wasn't bursting. Nor was it deflating. Moreover, tour buses driving mainland Chinese suits around open houses on their 2-3 day "buy all!" flash visits transformed from a one-off exotic thing to the routine. Local government doesn't do a shit about this. They are happy as this feeds the construction industry, creates jobs and they also get to tax all these new developments. Their hand is stuck in a cookie jar. In the end all these buildings are just a way to park the foreign money and so the Vancouver housing bubble is tied directly to the state of Chinese economy. The only way for it to subside is for China to have an economic crisis.
It is a greater fool situation indeed, but regrettably it unfolds at a state level.
The 2014-era housing bubble is driven not by runaway money-printing as in 2008, but by foreign corruption. Silicon Valley is expensive because every thieving Chinese official has a house out there in case things go seriously wrong (corruption is a death-penalty offense in China). As it turns out, rich people will pay a nearly-infinite amount of money to not die.
We're not talking about tulip bulbs. We're talking about personal safety for some seriously bad people who are at risk of being killed by their own people (who they've been robbing for decades) and who, quite frankly, deserve to die.
You'll need to buy a resume and references, for your new identity, in order to get an upper-middle-class management job, but that is much harder than it might seem when you're on the run from the law and possibly being hunted internationally (by vigilante bounty hunters if not governments). The buying-a-resume takes 3 years and in the mean time, you'll have living expenses. How do you get money to cover those? Your old-country money est perdu. Rental income from a couple buildings you "just happened to have" might float you, but for short-term needs you'll want to borrow against your house. One house (two would draw attention). Best if that house is "worth" $1.5 million. You can borrow a lot more against that than against a $400k L.A. bungalow.
Owning $1.5-10 million of real estate doesn't stick out as much in an area that is already horribly expensive.
Your understanding of LA-area real-estate -- and its appeal to Chinese buyers -- appears to be...incomplete:
"Wealthy Chinese home buyers boost suburban L.A. housing markets" [1]
"Housing crisis hasn't touched San Marino" [2]
In San Marino -- a former WASP bastion, now about 50% Chinese -- $2 - $10 million homes are readily found [3]. (And there are other, cheaper cities with large Chinese populations close by, so one can pick one's price-point).
In the city itself, in or near West LA for example, the market has been hot for a while -- it's not hard to find areas with median house prices over $1 million (e.g. [4]) -- a $1.5 million house would not be hard to find.
Or, for (much) more expensive places, one could go to Beverly Hills, Santa Monica, Rolling Hills, Malibu, etc. [5].
So, your putative fugitive would have little problem finding an expensive house -- for most of values of "expensive" -- in the greater LA area, either in a Chinese enclave or, if they needed to stay away from people who might recognize them, etc., in other nice areas.
[1] http://www.latimes.com/business/la-fi-chinese-homebuyers-201...
[2] http://articles.latimes.com/2011/jan/31/business/la-fi-san-m...
[3] http://www.zillow.com/san-marino-ca/expensive-homes/
[4] http://www.zillow.com/mid-city-west-los-angeles-ca/home-valu...
[5] http://la.curbed.com/archives/2012/10/10_pricey_houses_in_so...
For lower end housing stock, homeowners usually "jump" up to more expensive properties as they become more financially stable or as they need the room. This market seems entirely disconnected from that, but I'm not sure.
So, yes, the fact that global-elite billionaire scumbags use our real estate to launder their drug/blood money is a huge issue.
For lower end housing stock, homeowners usually "jump" up to more expensive properties as they become more financially stable or as they need the room.
That seems to be a Boomer thing. They bought the 3000 SF houses that are impossible to maintain unless you hire maids (which Americans don't like to do, even though at $20/h they're still cheaper than doing your own cleaning). I think the young generation values freedom and experiences (e.g. travel) more than stuff and space. Frankly, I find McMansions depressing.
Unfortunately, in many cities it's impossible to get a 1000 SF place at an appropriate price. You end up buying or renting 2000+ because that's all there is, unless you're talking about seriously defective housing (e.g. no laundry in the building, no dishwasher.)
Also, any source for your assertion about the effect of rent control on rents in NYC? I'm very interested in this if you have it.
In the case of NYC housing, the demand is inelastic, meaning that the price increases stick because enough people do not have any acceptable alternative to paying it (likely because employment in their chosen profession requires being physically located in or near Manhattan).
There is a simple solution to this. NY could allow as much new housing to be built as the market would bear. They could allow existing stock to be properly utilized, rather than giving long term tenants quasi-property rights (which also hinders new construction of anything other than luxury condos).
The more money those evil foreign devils pour into the market, the more money local construction workers will happily take from them.
The amount of gold on our planet is quite staggering, including oceans and deep water sediments.
"Competition will continue to drive the wealthy—foreign and domestic—to Brooklyn and middle-class buyers to despair."
Add to that the fact that a young middle-class lads and gals start out having already an high debt from the acquired education...