The Real Deal New York

What could burst New York City’s property bubble: OPINION

Closing a loophole in foreign investment taxes could turn off Chinese buyers
August 05, 2014 03:25PM

While Chinese investors continue to pump up the real estate market in New York, home prices are falling in Singapore and Hong Kong. The reason for the decline in these two cities offers some insight into how Gotham’s housing bubble could burst, writes Todd Schoenberger, president of J. Streicher Asset Management, in an editorial for CNBC.

Concerned about property bubbles and affordability, the governments of Singapore and Hong Kong have taken steps to tame prices by imposing mortgage caps, taxes on flippers and levies as high as 15 percent on foreign buyers, explains Schoenberger. Home prices have consequently dropped 3.7 percent in Singapore and 0.6 percent in Hong Kong.

Measures to collect additional taxes from foreign real estate investors exist in the United States, but a loophole exempts investors who employ a certain type of ownership structure from paying up – which explains why so many Chinese buyers purchase through LLCs, according to Schoenberger.

Most of the $22 billion that Chinese buyers are now putting into U.S. properties is invested in New York City, according to National Association of Realtors data cited by Schoenberger. If the government decides to step in and close that loophole, as Schoenberger says Capitol Hill is considering, the bubble will burst. [CNBC]Tom DiChristopher