This Savills report was super interesting and worth sharing.
Vancouver, Hong Kong and Singapore have the highest costs of the cities analyzed here. All three have recently added additional stamp duties on foreigners.
Some details: Hong Kong first introduced an additional 15% duty for international buyers in 2012. Singapore followed with its own 15% Additional Buyer’s Stamp Duty for foreigners in 2013, increasing it to 20% in July 2018.
Not surprisingly, Vancouver is suffering, Hong Kong is seeing the same issues, and we’ll see where Singapore goes.
New York City recently (in the last 3 years) toyed with adding an additional “mansion tax” on purchasers, not just foreign buyers, once purchase prices went above $5mm or $10mm.
As I understand it, that went nowhere, and is “dead,” according to real estate developers I know.
But if you look at this chart, a few things stand out:
Cost of purchasing as a percentage of property price is obviously incredibly high in Vancouver, Hong Kong, Singapore.
Shockingly so.
I’m actually looking at the relative ratios, and this seems the more interesting part; the cost of buying relative to the overall cost is overweighted to the extreme in Vancouver (85-90%), Hong Kong (95%+), Singapore (95%+).
Mumbai is quite similar to these, just at lower level.
Dubai, the same.
London, the same.
Let’s look at the cost of carrying the property.
Most are pretty similar, obviously we’re just talking about mortgage rates and taxes.
It’s the closing costs that jump out to me in New York.
As a total amount of acquisition, ownership, disposition over five years, selling the property is half of the total in NYC.
As real estate taxes jump in New York and as mortgage rates rise, as costs of labor (building staff) rise, it’s no surprise that the math becomes critical on the purchase price.
This explains to a degree why not all sellers make money on their purchases on a 5-year time horizon.
We can look at the math a bit more, perhaps at another time, but it’s pretty intuitive to see here a couple of things.
(1) How much your property much appreciate over 5 years in order to make money.
In New York, presently, that number is just under 15%.
Meaning your property has to appreciate 3% per year (against original purchase price) to break even.
(2) The entry barrier in New York, other than purchase price, is relatively low compared to many markets, such as London.
(3) I believe that Savills is just taking condominiums into account in New York, and is not necessarily factoring in cooperative taxes on the way in or out.
So I’d probably raise that 15% of purchase price, up to 18-20%.
So if the market has dropped meaningfully in New York, many sellers are taking losses on their sales.
I’m not at all saying that it’s not wise to purchase in New York. It’s just that buyers should be, and are, sharpening their pencils when determining a proper valuation at purchase time.
And while most buyers are not doing this kind of analysis at purchase time, it’s important to consider time horizon when making a purchase.
-Scott