Condos Are Now Safe Deposit Boxes for the Rich

New York Real EstateOut here on the west coast, we’ve watched in horror as condo prices in every big city have suddenly shot through the roof. In Portland, for instance, housing that was $300 a square foot just 2-3 years ago in The Pearl District is now pushing $700.

Who can afford these prices? Who is buying these condos?

Now we have some answers.

From Miami:

“This is what we do,” he continues. “We trade down here. These are traders who are not looking to live the American dream with a family of four and a dog. They’re looking to make a hundred-grand a unit … with virtually nothing being done but making a phone call to your broker in Miami and having him unload it to somebody else’s broker, who’s representing somebody in Russia.” The basic idea is: Investors buy in before construction begins, betting that by the time the building is finished, prices will have gone up.

From NYC:

Real estate agents say commitment to anonymity is essential. “One thing of being a high-end broker is we have to protect the privacy of our clients,” said Hall F. Willkie, president of Brown Harris Stevens. “If we didn’t, we wouldn’t have them as clients. We’re very much like private bankers in that sense.” I mean, sure! When property is just another investment, brokers do sort of become like private bankers.

And here:

They have been able to make these multimillion-dollar purchases with few questions asked because of United States laws that foster the movement of largely untraceable money through shell companies. Vast sums are flowing unchecked around the world as never before — whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets. Alighting in places like London, Singapore and other financial centers, this flood of capital has created colonies of the foreign super-rich, with the attendant resentments and controversies about class inequality made tangible in the glass and steel towers reordering urban landscapes.

It’s happening in SF too:

Average property prices in San Francisco have followed an upward trend, boosting investor confidence. After the recession, real estate in San Francisco has seen accelerated growth. The strong performance of the Bay Area’s economy led to affluent individuals profiting from appreciation in stocks and an influx of foreign buyers, increasing the demand for luxury homes in San Francisco. For younger UHNW individuals, the appeal of the San Francisco lifestyle, which differs significantly from that found in Los Angeles, is proving to be increasingly attractive. In fact, UHNW residence owners in San Francisco are significantly younger than the general average, at 56. The youth of this city and its recent rise to a#uence means that luxury residential properties are still priced lower than in some of the bigger markets – the most expensive property sold in 2014 was US$14 million, although the higher list prices of numerous other properties suggest an optimistic outlook for the future.

And all this money at the high end pulls up prices below, too:

As nonresidents, they pay no city income taxes and often receive hefty property tax breaks. A program aimed at new condo development doles out about a half-billion dollars in tax breaks a year, according to the city’s independent budget office. These savings are passed on to owners in the form of lower property taxes.

Do they affect the prices of less sky-high real estate in New York? The skyrocketing prices of the pieds-a-terre are affecting the price of real estate in the city more broadly. “There’s a downside to having such pressure at the top. It pulls up the prices overall. When owners of $10 million condos see that there’s a big market for $95 million condos, they’re more likely to raise their prices,” he said. “Then the person at $2 million raises his prices, then the person at $1 million sees that and there aren’t any prices below $1 million.”

So to recap, most of these rich investors never live in the units. They benefit from tax breaks on the projects, spend nothing to support the local economy, and jack up prices for the rest of us so that they can make a profit. Some of these buildings in New York are pushing two-thirds absentee ownership – anyone else see anything wrong with this picture?