High-end real estate brokers in New York worry that foreign second-home buyers are feeling under assault from all sides and may end up going elsewhere. Already wary of President Donald Trump’s anti-immigrant rhetoric, they now see a planned tax on absentee owners as a swipe from the political left.
“The international buyer has basically gone away over the past two years,” said real estate broker Martin Eiden at Compass, who sells about $50 million of residential property a year. “There’s only so much that people will take -- they’ll either go somewhere else or they’ll just get a hotel room.”
The proposed tax would apply to properties above $5 million owned by non-residents. Governor Andrew Cuomo says the state needs it to pay for transit fixes. Mayor Bill de Blasio says the rich should pay more, especially those who pay no income taxes while full-time residents bear the costs of services that make New York City so attractive to foreigners and out-of-staters.
The tax may slow sales at the upper end of New York’s housing market, but it could also bring benefits that go beyond fixing the subway, including encouraging developers to focus on units that are more affordable to permanent residents, said Moses Gates, a vice president at the Regional Plan Association. In the long run, everyone’s property values benefit from safety, security and cultural amenities funded by full-time residents.
“You’re talking about a very small, specific market of $5 million second homes that is not relevant to the vast majority of New Yorkers,” Gates said. “We have a housing emergency. Every unit of housing taken away for part-time use is not available for people living here full time.”
Pushing Back
New York’s real estate industry is pushing back against the tax, saying it will hurt a market segment that’s already struggling. Buyers this year signed 20 percent fewer contracts for condos, co-ops and townhomes above $4 million compared with the same time last year and they’re only making offers after the original list price drops by 9 percent on average, according to Donna Olshan, president of brokerage Olshan Realty Inc.
“The very rich really hate taxes,” said Barry Hersh, a New York University real estate professor and former property developer. "It will have a psychological effect and will be a lower number of sales. But is it 1 percent less, or 2 percent? I don’t know.”
The proposed tax will be included as part of the state’s budget due April 1. Its prospects for passage improved this month when Cuomo, de Blasio, Senate Majority Leader Andrea Stewart-Cousins and New York Assembly Speaker Carl Heastie backed it. Advocates say it would raise about $665 million annually, money that could be leveraged into billions of dollars more to pay off bonds for making transit-related capital improvements. Absentee owners, at least those from outside New York state, pay no city or state income taxes.
The proposed tax on so-called pieds-a-terre has gained traction after the purchase by Citadel founder Ken Griffin of a 24,000-square-foot penthouse on Central Park South for a record $238 million, making it America’s most-expensive home. Griffin, who lives in Chicago, will use the apartment when he visits Citadel’s New York offices, the company said.
‘Contribute More’
“You have people coming in, buying $200 million apartments, and there’s no mortgage-recording tax because they’re pretty much paying cash, and we still have to provide services,” Heastie said at a breakfast sponsored by Crain’s New York magazine on March 8. “So we’re asking people to contribute a little more.”