With Europe’s debt crisis mounting, foreign interest in New York’s ultra-luxury real estate is increasing yet again. Russian billionaire Dmitry Rybolovlev’s $88 million purchase of a 15 Central Park West penthouse is now the stuff of Manhattan real estate legend, while a Chinese buyer reportedly purchased four separate units at Extell Development’s One57 for $20 million apiece.
International buyers contributed $82.5 billion, or 8.9 percent, of the $928 billion spent on residential real estate in the United States for the year ending in March, according a survey released last month by the National Association of Realtors. That’s a 24 percent jump from the previous year.
While New York real estate agents have long been focused on international purchasers, they’re now scrambling more than ever to add foreign buyers to their client rosters.
But that’s often easier said than done: Depending on which country the buyers hail from, doing deals with foreign purchasers can require a working knowledge of everything from tax laws to feng shui. Plus, navigating cultural differences can be a minefield, and if brokers aren’t careful, one misstep can end a client relationship before it’s even begun.
This month, TRD looked at the dos and don’ts of working with some of the most active groups of international buyers: Russian, Chinese and Brazilian purchasers, as well as those from Western Europe and the Middle East.
Chinese buyers have been among the most active groups of international purchasers in New York in recent years, due partly to the growing number of Chinese millionaires and the strength of the yuan.
New York real estate appeals to these buyers, in part, because in China there’s no private land ownership, explained Bill Seto, principal broker at Flushing-based Fultonex Realty and president of the Chinese American Real Estate Association. Instead, residents obtain land leases, usually of up to 70 years.
Still, Chinese buyers face unique obstacles to purchasing U.S. property. For example, Chinese citizens are only allowed to transfer $50,000 out of the country each year because of government restrictions.
As a result, in order to buy properties here, many Chinese buyers find friends, family or acquaintances in China who are willing to send $50,000 to the U.S. to help them make the purchase. (The buyer reimburses them in yuan at home.)
The process is normally kept from brokers, one of whom said that it was better to be kept in the dark about it. While the practice is not technically illegal, they said, it’s frowned upon by the Chinese government.
Buying property in the U.S. is easier for Chinese citizens who already have businesses or investments abroad, from which they can withdraw funds. Perhaps for that very reason, some one-third of Chinese citizens worth over $1.58 million have overseas investments, according to a recent Bank of China estimate.
When working with Chinese buyers, American brokers should also be cognizant of certain cultural differences, brokers said. For one thing, feng shui — the Chinese practice of creating harmonious surroundings — is often dismissed as superstition by American brokers. But it is taken very seriously in China, and can indeed make or break a deal.
Tristan Harper, a European-born Prudential Douglas Elliman broker, recently had a Chinese client who was about to go into contract on an apartment, but pulled out at the last minute. It turned out the apartment’s views of a nearby domed church are considered bad feng shui.
Seto, whose firm is in the process of setting up a website allowing U.S. brokers to advertise properties to the Chinese market, said he instructs all brokers at his company to take at least an introductory course in feng shui.
Brokers should also be aware that in Chinese culture, the number four is considered a bad omen; in regional Chinese dialects, the word is almost homophonous to the word for death. As a result, Harper said, “one of my purchasers wouldn’t even consider 74th Street, although the apartment was perfect for her.”
The number eight, by contrast, is associated with good fortune.
Other cultural differences also come into play for brokers with Chinese buyers. New York brokers may know far more about real estate here than their clients, but to avoid coming across as rude, Seto said, they should be careful not to voice their views too strongly.
“You have to be careful how you’re putting your thoughts across,” he said. “You should always let them finish what they’re saying and agree with them. If you disagree, it’s best to say, ‘I understand. However …’ ”
Likewise, Seto said, when Chinese buyers say they’ll consider your thoughts on a given subject, it generally means they disagree.
Former Soviet Union
When former Citigroup chairman Sandy Weill found a buyer late last year for his $88 million 15 Central Park West penthouse, the real estate community was less than shocked when the buyer turned out to be Russian.
Thanks to a commodities boom and other factors, the number of billionaires in Russia and the Ukraine has more than tripled since 2009, according to Forbes. And many of these wealthy buyers have been putting their money into real estate: Russians have purchased more than $1 billion worth of U.S. residential real estate in the last four years, according to a recent New York Times report.
But buyers from the former Soviet Union often have an especially cautious approach to dealing with brokers and attorneys. Accustomed to rampant corruption in post-Communist Russia, these buyers are often unwilling to trust even their own agents or attorneys, brokers said, and will sometimes attempt to circumvent them and deal directly with the seller.
“Because there’s so much corruption overall in Russia, people are more skeptical in general — and more careful,” said Angela Rapoport, a Corcoran Group broker who is originally from Estonia. To help ease the process, Rapoport suggested that brokers introduce prospective Russian buyers to an American attorney even before looking for apartments, so that they have a good working relationship by the time money transfers occur.
And in today’s difficult lending climate, it’s common for New York brokers to ask detailed financial questions early on in the home search. But that strategy can backfire with Russian buyers, who don’t consider it appropriate to ask what someone does for a living — or how much money they make — on the first meeting, Rapoport said.
“If it’s a very corporate job, they may tell you upfront, but if a person is more entrepreneurial, they don’t like to discuss what they do or how much they earn,” she said.
Edward Mermelstein, a Ukrainian-born real estate attorney, agreed that Russian buyers tend to be very private, even secretive, when it comes to financial information. As a result, he said, they are often unprepared for the detailed board packages now required by co-ops and even condos, especially when it comes to showing proof of income.
“Typically, a Russian’s income will be derived from various off-shore entities, of which there may be multiple layers,” he said.
To aid in the buying process, he said he advises all Russian clients to open an American bank account as soon as they begin the home search, so they can start building a credit history while they look for properties to buy.
Western Europeans have long made up a crucial segment of New York real estate buyers. But now more than ever, European purchasers — faced with economic turmoil at home — are attracted to the relative security and stability of the U.S. residential real estate market, brokers said.
European investors bought $1.6 billion worth of commercial and residential real estate in the U.S. in 2011, more than twice the $700 million they invested in 2010, according to data from Jones Lang LaSalle cited by the Wall Street Journal.
The process of doing a real estate deal in cities like London, Paris and Berlin tends to be similar to how it’s done in New York, said Alex Karalanian of Citi Habitats, whose parents were born in France and Romania. So unlike other groups of international purchasers, for example, Western Europeans are no strangers to the idea that New York sellers want offers close to the asking price.
But when scheduling closings, brokers should be aware that wire transfers from European banks can take up to three weeks, Karalanian said, especially if the buyer is relying on a local bank based in their home country, as opposed to an international bank like HSBC.
“If you don’t plan for it,” he said, “it can hold up the deal.”
Karalanian is proficient in French and Romanian, but said most European buyers speak enough English to get them through the home-buying process. Still, language can be an obstacle when it comes to conveying technical real estate terms, so he frequently turns to Google Translate to make sure he’s using the right phrases.
Residents of this South American economic powerhouse, who have been actively buying up property in Manhattan for the last five years, tend to demand a much higher level of service than New York brokers are used to, said Brazilian-born Elliman broker Marcos Cohen. That’s partly due to the fact that in Brazil, even the middle-class commonly employ cooks, cleaners and maids. As a result, they often expect concierge-level attention from their brokers.
“I’ve been asked for doctors, dentists and all kinds of referrals,” Cohen said. “It becomes more than a broker-client relationship. You become more like a family friend.”
Town Residential broker Christian Benites, who spent time growing up in Brazil, said he’s spent almost as much time browsing through Gucci and Hermès stores with Brazilian clients as he has showing them apartments.
And while American buyers may find it reassuring to have a family member or friend recommend a broker, many Brazilians — who tend to be focused on maintaining their privacy — can be turned off when brokers mention the names of their other clients, thinking that means the broker will blab about them to others, Cohen said.
When it comes to financing, many Brazilian buyers would rather go without, Cohen added. The mortgage market in Brazil was almost nonexistent until a few years ago, due to massively high interest rates, he explained; residential mortgages have only become commonplace in the last few years.While attitudes toward financing are beginning to change in Brazil, the old guard still prefers to pay all cash.
“Brazilians don’t have the mortgage mentality,” Cohen said. “They say they wouldn’t be able to sleep at night.”
Luckily, there are few restrictions on moving cash from Brazil to the U.S., Cohen said.
Like Chinese buyers, Brazilians also tend to bid low with expectations of haggling, Benites said.
“Their culture is one of negotiating,” he said. That can backfire in the New York market, where sellers expect to sell their homes for close to the asking price.
It’s up to brokers to “convey to them that properties will have less room for negotiation,” he said.
Recent reports of Middle Eastern investment in the United Kingdom — Middle Eastern buyers made up 16 percent of prime central London residential sales in the last quarter of 2011, according to CBRE — have, to some extent, overshadowed such news in New York, particularly on the residential side.
Still, New York has seen its fair share of Middle Eastern interest in both residential and commercial properties. Saudi Prince Alwaleed Bin Talal’s Kingdom Holdings, for example, owns a stake in the Plaza hotel. And in May, Qatari Prime Minister Hamad bin Jassim bin Jaber Al Thani made an offer to buy two of the late heiress Huguette Clark’s apartments at 907 Fifth Avenue, but was rebuffed by the co-op board. (Brown Harris Stevens’ Mary Rutherfurd, the units’ listing broker, did not respond to a request for comment.)
Town Residential’s Terry Naini is an Iranian-born broker who has worked with a number of Middle Eastern clients, particularly purchasers from Saudi Arabia. She said many Middle Eastern buyers prefer to stay under the radar, often buying with LLCs and looking for the utmost discretion from brokers. And like other groups, Middle Eastern buyers prefer to avoid the topic of money. In fact, Naini said she finds that it’s best to not even ask for the buyer’s price range, but rather to show them a few differently priced properties and gauge their interest accordingly.
The Qatari Prime Minister’s attempt to buy a co-op was unusual, she added, since Arab buyers often prefer townhouses or free-standing houses. That’s especially true because wealthy Middle Easterners are used to having luxurious gardens and open courtyards in their homes, so they often want the same thing in New York.
“If a property doesn’t have outdoor space, forget it,” Naini said.