And all eyes are on Manhattan and Miami, according to an insider, because these two markets are seen as the embodiment of the universal “location, location, location” mantra of real estate.
Eastern European investor interest in the U.S. residential property market is not new phenomena, says Edward Mermelstein, partner at Rheem Bell & Mermelstein LLP and Mermelstein Development LLC. New York. These buyers have been coming to the U.S. for the past 15-plus years. “What is new is that in the past year or so they are dominating the high-end residential purchase market,” and even driving prices up. Both Manhattan and Miami “are culturally associated with prestige,” he says.
As the housing market continues to move into the right direction, more buyers will emerge looking for vacation properties or investment options. For the moment, however, commercial real estate investing opportunities “are not as readily available to these buyers” because those types of deals are mostly done through partnership structures, he says.
Judging from what Mermelstein and his team is hearing from business partners and other New York developers, sellers prefer these buyers because they make cash purchases, as opposed to local buyers who prefer credit transactions.
Data affirm a larger number of high-end homes changed owners by yearend 2012.
According to various sources, the expected fiscal cliff budget deal created an incentive to sell luxury homes and potentially save tens of thousands of dollars in taxes. Luxury home owners would rather make a $1 million home sale profit in 2012.
Foreign or domestic demand is there. Apparently there is enough supply to meet the demand. November 2012 data reported by the National Association of Realtors show year-over-year sales of homes worth at or over $1 million increased 51%.
In Manhattan, according to some media reports, the number of sales of home valued at more than $10 million jumped 44% year-over-year during the last three months of 2012.
If in the past Eastern European buyer demand was primarily motivated by vacation choices, Mermelstein told this publication “a more recent phenomena,” are investments channeled towards the purchase of new construction, condominium units, and also pre-construction. They are looking at options and coming in as limited partners, as well as general partners, or co-general partners “on certain construction projects,” he said.
Data from the Pro Teck Valuation Services February Home Value Forecast, a monthly report that focuses on higher-priced homes in the top 200 CBSAs, also support Mermelstein’s findings. It also shows the East and West Coast markets still are more volatile than the rest of the country.
In February Manhattan was not one of the 10 best performing metros for the single-family home markets. The reason, said CEO of Pro Teck Valuation Services, Tom O’Grady, is that home prices on the East and West Coast markets “rise and fall faster than in markets where new supply can be more easily added.”
According to Michael Sklarz, principal of Collateral Analytics and contributing author to Home Value Forecast, one of the most newsworthy findings for February “is the latest upmove in the Manhattan Beach market which has pushed prices to all-time-high levels.”
Another development, according to Mermelstein, is that if purchase funds varied from one to several million dollars, now there is at least one investor in “a project that is over $100 million.”
Currently the Russians are leading the way “probably because their financial system is a little more advanced,” compared to other Eastern European countries, he says. Russia has more liquid assets generated primarily by natural resources such as oil.
An equally important factor that helped open the door to these buyers, he adds, is the wider international cooperation and data exchange systems that enable U.S. banks to track foreign money sources and avoid money laundering transactions, or fraud.