Skyrocketing land prices combined with a continued inventory shortage meant that residential developers cranked up prices for new apartments in Manhattan in the third quarter of 2013. The median sale price of a new construction condominium jumped 15 percent in the third quarter, to $1,222 per square foot from $1,062 in the same period last year, according to the latest new development market report from residential brokerage MNS Real Estate. Excluding Harlem, the median price per square foot was $1,443, the report shows. The number of transactions increased 3.5 percent to 446 from 431 in the same period last year.
“With land trading in the $750 per square foot range, it’s extremely difficult to underwrite deals in Manhattan for anything less than $2,000 per square foot,” said MNS CEO Andrew Barrocas, referring to developers’ inability to finance projects at lower prices. “As long as land prices continue to trade at that level and up, you could see condo prices [in the future] go up to $2,500 [per square foot].”
Another consequence of high land prices, Barrocas said, is that it became “virtually impossible to do rentals,” as developers can’t make them financially feasible.
However, the overall dollar volume of new development homes sold in the third quarter decreased 5.24 percent year-over-year, from $888.7 million to $842.1 million. The median sale price fell 1 percent to just under $1.7 million from $1.72 million.
An “abundance” of larger apartments were sold, Barrocas noted, as buyers in the $3 million to $10 million price range tend to pay all cash and would have been less susceptible to the recent uptick in mortgage interest rates, he said. “It gives some insulation to a developer,” he said.
Indeed, three-bedroom units made up 36 percent of new development sales in the third quarter, according to the report. The median sale price for three-bedroom units was $3.64 million.
Chelsea saw the steepest growth in median sale price per square foot over the last two years, with a 42 percent spike to $1,995 per square foot from $1,404 two years ago, the report shows. The median sale price was $2.95 million.
Gramercy Park, however, continued to have the most expensive median price per square foot at $2,455 and a median sale price of $7.99 million, while Harlem was the cheapest Manhattan neighborhood tracked by MNS, with a median price per square foot of $646 and a median sale price of $520,000.
Meanwhile, the Brooklyn condo market – where the median price per square foot jumped 12 percent year-over-year in the third quarter to $810 – was still “significantly undervalued,” Barrocas said.
The borough’s median sale price rose by 7.9 percent to $741,707 year-over-year.
In contrast to Manhattan, however, developers were still seeing tremendous profits from rental buildings, Barrocas said.
Total Brooklyn new development sales were at $166.8 million in the third quarter, a quarter-over-quarter increase of 13.1 percent from $147.5 million.
Carroll Gardens led the borough’s neighborhoods with a median price per square foot of $1,008 and a median sale price of $1.85 million, while the lowest prices were seen in Bedford-Stuyvesant, which had a median price per square foot of $384 and a median sale price of $497,823.