The top end of the housing and condo markets in places like San Francisco, New York, Miami, and London is starting to crack. From Wolf Richter at wolfstreet.com:
Luxury condo boom in Lower Manhattan turns to glut, prices sag
In Lower Manhattan, 31 towers with over 5,000 apartments are sprouting up. They’re not exactly in the “affordable” category. The median price for condos – half sell for more, half sell for less – has soared 77% since 2013, to $2.43 million, while the median price in the overall Manhattan condo market has shot up “only” 54% to $1.84 million.
These are stunning numbers, even for those of us who’ve become inured to stunning numbers by being exposed on a daily basis to the craziness in San Francisco.
“Lower Manhattan is getting a facelift” — that’s how Frances Katzen, of Douglas Elliman Real Estate, explained the phenomenon to the Financial Times. The FT adds some color:
At 30 Park Place, an 82-story tower a few blocks from Calatrava’s new station, a new duplex apartment with more than 6,000 sq ft of living space is listed at $32.5 million through Corcoran Group Real Estate. A few doors down, Soho Properties is developing 45 Park Place, a 70-story condo project, with the cheapest apartments expected to sell for $9 million.
Don’t even ask about the association fees.
With condos, price isn’t the only expense. Association fees, which cover building maintenance, staff, indoor swimming pools, and other common amenities and charges in a luxury building, can cost a bundle. The FT found that “for example, the monthly charges for an $11 million two-bedroom midtown condo are listed at $5,600 a month.”
Soaring condo prices induce developers to build more, and they gravitate toward the top end. Why? Because that’s where the money is. Cheap credit funds their ambitions. It takes years to take a condo tower from planning to completion. Once the process is far enough advanced, it’s difficult and costly to stop it. And these towers keep growing and adding new supply, long after demand has started sagging. That’s why condo gluts are so terrible – particularly for lenders.
And demand in that space is now sagging: The number of condos sold at over $4 million plunged to their “lowest level since 2012.” To get things moving, the prices of a third of the 261 penthouses on the market in April – 261 penthouses on the market! – was cut by an average of 10%. And some prices were slashed a lot more. The FT:
In Chelsea, the asking price for a 5,995 sq ft penthouse in Walker Tower, a refurbished art deco project, fell from $70 million to $55 million in the 10 months to March, according to StreetEasy. In SoHo, a 5,912 sq ft penthouse with a private rooftop deck has been on sale for almost nine months and the price has been reduced from $26.5 million to $22.5 million.
In this elegant manner, the glorious high-end condo bubble in Manhattan has turned into a terrific glut:
Suddenly, Manhattan is awash with lavish penthouses, each with so-called “spectacular views” and “one-of-a-kind amenities.” According to Trulia, the property listings site, more than 700 apartments priced in excess of $10 million are on the market in the borough. The reality is that sellers have been forced to discount and deal on the most expensive units.
To continue reading: Another Condo Bubble Bites the Dust