The Real Deal New York

Foreign buyers lend city’s residential market false sense of security

Panel of experts agree that foreign shoppers and low mortgage rates are fragile and could present long-term trouble

June 19, 2012 06:15PM
By Guelda Voien

From left: Noah Rosenblatt, Eric Barron, Mark Wenitzky and Jill Sloane

Low mortgage rates together with an influx of foreign capital have boosted New York City residential real estate sales in the past year or so, especially at the “super-high end” of the market. But that trend may create some unintended consequences.

Today’s Real Estate Trends panel, hosted by Citibank, shed light on the possible longer-term impact of the frothy market — for instance, buyers reluctant to sell when rates eventually do rise, and brokers’ reliance on European buyers, whose cash could dry up fast if the debt crisis on their home continent intensifies.

“You wait until the third quarter market report comes out,” Noah Rosenblatt, founder of real estate analytics site Urbandigs.com, said, projecting high sales volume and staggering prices. “The numbers are gonna blow you away.”

But should European financial troubles intensify, expect sales to fall, Rosenblatt said.

Keller Williams NYC CEO Eric Barron’s joking advice for brokers: “Make a bunch of money this year.”

Rosenblatt believes that the European debt crisis will mean a “flight to quality” in residential real estate, as it has in the commercial realm. But he said that is unlikely to create any long-term boom here.

The number of foreign buyers — replete as they are with cash — can also present difficulty for brokers, since they require more organizational work to close a deal and often have a hard time securing financing.

Head of the East Coast mortgage division for Citibank, Mark Wenitzky, referred to a program Citi rolled out about six months ago that allows foreign nationals who have Citi accounts abroad to get American mortgages — the only difference being how much they can borrow. Currently foreign nationals can get 50 percent financing for apartments over $2 million, and 75 percent in the $650,000 to $2 million range, Wenitzky said. American nationals can usually borrow at least 80 percent against the value of their home, brokers said.

Brokers on the panel agreed that in the absence of European buyers, they have increasingly shifted their focus to buyers from Brazil, Russia, India and China, sometimes called “BRIC buyers.” Of the 46 apartments sold so far at luxury tower One57, 23 were foreign, according to the sales office.

Jill Sloane, an executive vice president at Halstead, joked that of that 23, “I’m sure 20 were Russian.”

But in the longer-term, brokers also worried that the ultra-low mortgage rates of today will slow the real estate market of the future, as no one will want to abandon their 1.5 percent rate mortgage once rates rise.

One strategy brokers mentioned was taking out a longer-dated mortgage, with the plan to assign it to the next buyer. Though that approach will not always be possible, mortgage bankers in attendance noted that the strategy could help prevent a potential lull in the market when rates inevitably creep back up. “The thing is you really need to understand the servicing requirements [of your loan],” in order to assign it later, said Victor Shalo, a vice president at Citi.

Meanwhile, Wenitzky took aim at the home valuation code of conduct, which creates a firewall between appraisers and banks. Crafted by Freddie Mac, the Federal Housing Finance Authority and the New York State Attorney General, the code went into effect in 2009 and requires mediation by an appraiser vendor management company.

As a result, Wenitzky said, appraisers are being given assignments based on the prices they quote, not the markets they are familiar with. In the niche markets within Manhattan, it can be very difficult to value apartments, and the expertise of a local appraiser is needed, he argued. “One rotten apple spoiled the juice,” during the boom years, he said. “That’s not a reason to throw them all into the juicer.”

But, overall, brokers should stop fixating on regulations and the economy, according to Barron. “I’ve seen a lot of real estate professionals frozen by the market,” he said. Instead, brokers should focus “on what they do: network and market.”

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