In recent years, stories of wealthy buyers pouring cash into the Manhattan luxury condo market have become almost commonplace.
In 2014, for example, Reuters described “The China Price,” a phenomenon where Chinese buyers in Manhattan overwhelm the competition with all-cash offers.
But the stories of a dominant all-cash luxury condo market may be somewhat exaggerated, according to recent numbers published by The Real Deal. The calculations call into question the popular belief that nearly all ultraluxury buyers in the Manhattan condo market are paying cold cash, and not financing purchases with a mortgage.
The Real Deal determined that of the Manhattan condos sold for $5 million and higher between July 1, 2014 and June 30, 2015, 42% of those buyers took out mortgages. That was only slightly lower than the 46% of those buying in both the $1 million to $5 million-range and the $300,000 to $1 million range.
The all-cash buy is far from dead, however, according to Ed Mermelstein, a Manhattan-based real estate attorney. Mermelstein attests to the fact that many buyers from China and Eastern European nations still come to the Big Apple favoring the all-cash deal. For affluent Manhattanites and other American buyers, the pendulum has begun swinging to traditional mortgages and other more creative ways of financing a home, Mermelstein said.
“I don’t believe stories about the all-cash deals have been exaggerated,” Mermelstein said. “For many foreign clients, mortgages don’t make sense. They’re very into wealth preservation.”
He says local buyers are seeking the tax breaks that a mortgage can offer and the wealthy often use innovative strategies like borrowing against their own portfolios to purchase Manhattan condos. When borrowing against one’s own portfolio, the interest rates charged are generally lower since there is significant collateral backing the loan.
Mermelstein points out that banks and major lenders have also been loosening restrictions on jumbo loan offerings in recent years. Even though standards for borrowing are far more stringent than in the past, many financially savvy Manhattan buyers have consistent income and considerable reserves.
In 2015, the influx of new condo units in Manhattan was estimated to have been at its highest since 2007, according to Corcoran Sunshine Marketing Group, which tracks development. 6,500 units became available for sale at the beginning of the year, compared to 2,500 in 2014.
The average rates for 30-year and 15-year fixed-rate mortgages fell from 4.12% to 4.09% and from 3.3% to 3.27%, respectively, according to Bankrate’s July 29 interest rate survey.
Updated on Aug. 5, 2015
Correction: The Real Deal published an article last month examining mortgage data for luxury condo sales in Manhattan from July 2014 to June 2015. An earlier version of this article incorrectly attributed the article to The Daily Deal. (Aug. 4, 2015)
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