Even as developers have been reshaping Manhattan’s skyline with soaring residential towers, the local new-build market has been dropping like a stone.

The number of new homes sold in Manhattan in the year to September is down 39 per cent on the same period in 2017, according to new data from real estate firm Douglas Elliman. Median sale prices fell 9 per cent over the period.

“We’re in the middle of a US housing slowdown, with Manhattan’s prime market the first and most sensitive to react,” says Jonathan Miller of Miller Samuel, a local property appraiser.

The slowdown has been most pronounced among the priciest homes, many of which are to be found in the slew of new super-slim residential skyscrapers that have sprung up along Billionaires’ Row — the area to the south of Central Park, centred around West 57th Street — and in parts of Lower Manhattan.

The stock of unsold luxury homes has been piling up. For properties priced above $3m, the ratio of homes sold to those currently for sale in Manhattan has gone from 1:3 to 1:6 in a year, according to Stribling. For homes priced above $10m, the ratio is 1:10.

Garrett Derderian of Stribling thinks the real number is more like 1:15, since, he claims, developers have been lowballing their supply numbers, mindful that a full picture will send prices falling further. “They are holding back homes that they would otherwise be actively marketing, and which would therefore show up in inventory figures,” he says. Inventory figures are being “significantly manipulated” by the practice of excluding this so-called shadow inventory, according to Miller.

Prices for super prime homes have been falling steadily. “In the market north of $10m, you’re seeing prices off anywhere from 10 to 30 per cent from the peak in 2014,” says Miller. In the third quarter of this year, the average home sold above $10m went for 13 per cent less than its asking price, the biggest discount of any price bracket tracked by Stribling.

Things could yet become worse. In the past three years, nine new residential skyscrapers (many include commercial tenants, too) taller than 200m were built in Manhattan, according to the Council on Tall Buildings and Urban Habitat. Between the beginning of this year and the end of 2020, 22 more are set to join them, providing another 1,412 floors to a total height of 3.6 miles.

These will include Central Park Tower — which will become the US’s second tallest building, reaching up 472m, when it is completed in 2020 — and 111 West 57th Street, will reach to 435m when completed next year.

The tall building boom will add to the supply of unsold new homes. The number of new Manhattan apartments for sale — including shadow inventory — will increase from 6,300 in 2017 to 7,900 in 2019, even as the number sold will drop from 1,900 to 1,800, according to Miller Samuel. Add to this a glut of high-value homes that developers are finally forced to release. “Many of these were held back in 2015 when the market started to turn when there was a belief that this was a blip. Now that these firms’ lenders can’t wait any longer, so many of the homes that are likely to come online through 2018 and 2019 will be the larger, high-value units,” says Miller.

At precisely the time that buyers for these new homes are most needed, growing ownership costs of new homes will discourage buyers. The new Republican tax bill, in force since January, caps at $10,000 the state and local taxes that many Americans can offset against their federal tax bill (so-called “itemised” deductions).

“Following the changes, buyers have much less incentive now to buy a larger, more expensive home,” says Professor Lawrence White, an economist at NYU.

This is particularly galling to buyers in New York where state and local taxes are among the highest in the country, says Miller. He estimates the property tax on a new $3m Manhattan home is currently $44,000 per a year, while other non-property related state and local taxes come to double this. “What developers aren’t factoring in is the fact that property taxes are particularly high on new developments.”

Another worry is the growing share of investors among buyers of new homes. Data from New York property website StreetEasy show that more than one in 10 condos sold in New York last year — a total of 1,313 — were listed for rental within six months, the highest number since the firm started collecting data in 2006.

“With the relatively risk-free 10-year Treasury rates yielding more than 2 per cent, which is a comparable yield to many of these apartments, investors appear to be speculating on future price and rental growth to turn a profit on their investments,” says Casey Roberts of StreetEasy. Recent price falls might make these investors nervous; large-scale selling from this segment would drive further price falls.

Developers might be able to handle this. The oversupply of homes at the top end is not confined to New York — a function of the higher margins they offer developers. In Manhattan, margins increase particularly quickly further up the value chain. The average price per square foot achieved in the third quarter for homes costing over $10m was $3,430, nearly three times the $1,253 average for homes sold for less than $3m, according to Stribling.

Nonetheless, developers are trying a range of tactics to avoid cutting prices. To incentivise brokers, they are shifting commission payments forward from the date on which a sale is closed to the date on which it is agreed, which may be two years earlier, says Derderian.

Buyers are being lured with offers to pay transfer taxes, covering mansion tax — an additional 1 per cent sales tax on homes costing more than $1m — free parking spots (which currently set you back $750,000 at the soon-to-be completed residential tower at 220 Central Park South), interior upgrades or cash back to spend on the apartment.

The advantage for developers of such perks is that they limit the price cuts, flattering the state of the market with the official price figures, Derderian says.

When it was launched, buyers of homes in Beekman Residences in Downtown were being offered a $10,000 gift card to spend at the hotel in the same building. If the market’s current trajectory continues, that may not cover the bar tab to drown their sorrows.

Top of the world Before it described a top-floor flat, the word “penthouse” meant a kind of outbuilding — typically a shed with a sloped roof. Such a rustic image is a long way from today’s Manhattan penthouses with their positions in the heavens. Even among New York’s gilded skyscrapers, penthouses are in a market of their own. Across 71 penthouse sales in 2014, the average mark-up on the floor below was 75 per cent, according to 6 sqft, a New York property website. Whether they’re dizzied by the rarefied air at this height or stupefied by the superabundance of “bespoke features”, buyers have been willing to pay a considerable premium to be top of the tree. Here is a selection of some of the most opulent penthouses on the market right now: Hampshire House, Midtown, £25m (Douglas Elliman and Knight Frank) With almost 10,000 square foot of indoor and outdoor space — and no fewer than five balconies — the penthouse of the Hampshire House is certainly roomy. The average listing price in the building is less than a quarter of the penthouse’s price tag. For that money, however, the buyers get uninterrupted views across the entirety of Central Park: the closest neighbour to the north is more than 50 blocks away. The XI, 11th Avenue, Lower Manhattan, $28m (Douglas Elliman) The five-bedroom, 5,663-square foot penthouse is in the XI, Bjarke Ingels’ addition to the Manhattan skyline. To the south is a sweeping vista to One World Trade and the Statue of Liberty. According to the brochure, the “dramatic windows” let in “magnificent light” and the proportions are “gracious”. 111 Murray Street, Tribeca, $40m (Douglas Elliman) It would be difficult to top the penthouse at 111 Murray Street. “The crown atop a striking sculptural glass tower,” is how it is described in its sales brochure. The five-bedroom penthouse has views across the city in every direction. George Hammond

Buying guide

During the third quarter of this year the average Manhattan home took 137 days to sell. Some 42 per cent of homes priced above $10m were on the market for more than 180 days

Homes priced above $3m comprised 30 per cent of inventory and 15 per cent of sales in the third quarter of 2018

Currently, the sales tax (including state and city tax and state mansion tax) for a new $2.5m home in Manhattan is 2.8 per cent



More homes at propertylistings.ft.com

Graphics by Steven Bernard

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