More lending oversight for overseas shoppers

Foreign visitors love to shop in New York, and their appetites don’t stop at boutiques and department stores. They’ve snapped up 25 percent of all new condo sales over the last five years, according to estimates from brokers, appraisers and lenders.

They’ve often bought their properties with minimal background checks, mostly because verifying criteria like creditworthiness and job security was difficult from thousands of miles away.

Still, lenders were willing to cough up 90 percent or more of the financing for a condo purchase, or more, back when they used more relaxed standards — often not requiring the same paperwork, such as employment verification and bank statements, that are asked of American buyers.

Against a backdrop of revised, tighter lending standards, foreign buyers seeking a New York mortgage are among first to be denied financing. Now they’re liquidating accounts on their native turf to pay cash for apartments here, brokers said.

Tamir Shemesh, an executive vice president at Prudential Douglas Elliman who has dozens of foreign clients, said that a year ago, his clients were shopping for five- and seven-year adjustable-rate mortgages like their American counterparts.

Now, though, they’re more likely to take out a home-equity loan against their residence in, say, Europe in order to invest here.

“Creativity with financing has vanished,” Shemesh said.

Those still on the hunt for a mortgage have about half as many lenders to choose from — about 20, down from 40 a year ago — said Max Dobens, a vice president with Prudential Douglas Elliman who frequently works with international clients. But financing is still out there.

Even though a New York lender recently revoked a commitment letter to one of his South American clients, another bank was willing to underwrite the deal, and it ultimately closed, Dobens said. But the new market would typically spell problems for this kind of foreign buyer, he added, who did not have U.S. citizenship or a regular source of income but was living off the interest on his savings in his home country.

Many foreign buyers prefer to pay cash when buying in the U.S. The tightening of lending standards is not expected to affect their buying habits, brokers said.

Still, even with buckets of cash, most foreigners shouldn’t even think about trying to buy in co-op buildings, which make up 80 percent of Manhattan’s residential market. That advice was true in the past, and it’s perhaps even more relevant today, Dobens said.

It’s not that foreign buyers can’t afford the 25 percent down payment most co-ops require; it’s that without U.S.-based assets or a regular paycheck from a U.S. employer, their bona fides won’t pass muster with the co-op board, brokers said.

If foreign buyers do pursue the mortgage route and are willing to subject themselves to heavy scrutiny by mortgage lenders, they better have assets socked away in U.S. banks.

Having savings here is even more important than having a high-paying occupation back home, said Patricia Warburg Cliff, a senior vice president at the Corcoran Group whose clients hail from Ireland, Germany, France and Italy.

Still, even before the credit crunch, many of her clients sought all-cash deals, since they were investors looking to pick up a half-dozen apartments at a time before quickly reselling them, Cliff said.

“Mortgages weren’t ever part of their equation,” she said. “It was a business investment from the beginning, not really like buying a home at all.”

For their part, New York developers who strongly benefit from overseas interest are unconcerned that buyers might have a harder time purchasing units in their buildings, even as they admit that the market has slightly softened.

Gary Barnett, president and chief executive of Extell Development, said that in the last few weeks, his Avery and Rushmore buildings, two luxury condos on Riverside Boulevard next to the Henry Hudson Parkway, continue to be popular with Asian and European buyers who “can’t get waterfront property in their own countries” because it’s too expensive.

The Avery, which has 274 units, from one- to three-bedrooms, is more than 80 percent sold, while the Rushmore, which has 283 units, with one- to five-bedrooms, is 50 percent sold. Barnett said many will be delivered to the expatriate crowd. Sales started at the Avery in March 2006, and they began at the Rushmore in October 2006.

“I don’t think foreigners are being affected that much at all, because a lot are buying with cash,” said Barnett, whose earlier condo development, the Orion on West 42nd Street between Eighth and Ninth avenues, with about 550 units, was also a hit overseas. “They’ve never been that highly leveraged to begin with.”

Global economic conditions could be the ultimate arbiter of whether foreigners keep buying here, more so than just domestic credit concerns, brokers said.

As long as the dollar stays weak relative to other currencies, especially the euro, foreigners could continue to flock here despite any resistance they might encounter from lenders or banks, said Noah Freedman, principal of Bond New York, whose clients include Israelis, South Koreans and Brazilians.

“Their currency is still strong here,” Freedman said, “so demand for homes is, too.”