Do you have your dreams set on acquiring a slice of the New York property pie? It’s a great time to buy now with the current buyer’s market; considering how much NYC has recovered from the Great Recession. Home values look set to keep growing over the longer term. When beginning your search, you will come across ‘new developments.’ These are condo buildings that have just been completed or are still under construction and can be purchased before completion. Here’s why you should consider buying new construction in NYC.
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Everything is brand-new and modernEverything is brand-new and modern
You’re either one of two buyers. A person with nostalgia for old styles and architectural details like those found in pre-war buildings. Or someone who loves everything to be brand-new and modern. When you choose a new construction building, that’s what you get, the latest and greatest. For many millennial buyers, this is what they’re looking for. A building with all the most recent finishes, amenities, and smart technology.
For investors who plan to rent out the unit, this can be a big selling point. Best of all, the building will still be regarded as ‘new’ for many years after the purchase. Which means it will command a higher price per square foot. Your condo will also be able to compete with other new properties if you buy the right one, of course.
There’s an oversupply of inventoryThere’s an oversupply of inventory
Changes to zoning laws and new tax incentive programs have seen the number of new developments significantly increase over the last few years. This is seen throughout Manhattan and in the most gentrified Brooklyn neighborhoods such as Downtown Brooklyn, Dumbo, and Williamsburg. All of which have seen a dramatic change from primarily commercial/industrial areas to residential areas.
While units in these buildings do command higher prices, the current oversupply of inventory means that buyers hold an advantage. A slowdown in the number of sales this year that will most likely last until the 2020 election, as well as the oversupply, is making sellers far more open to negotiating.
If you encounter a building that will not negotiate today, there’s a good chance they will come around sooner rather than later. The opportunity for price reductions can only increase as sellers/developers looking for a way to compete as more new developments come online.
Just like all properties, there are great new developments and then there are lemons. Don’t get caught buying a lemon. – Gea Elika, Principal Broker at Elika Real Estate
The opportunity for tax abatementsThe opportunity for tax abatements
With new construction comes the chance for tax abatements. Due to incentives, the developer gets their taxes reduced, which then gets passed on to the buyer in the form of lower monthly carrying costs. Up until 2016, it was the 421a tax abatement that created this. Now it’s the Affordable New York Housing Program that will ensure lower monthly carrying costs for several years down the road.
The chance to buy into pre-constructionThe chance to buy into pre-construction
When looking at new developments to buy, one of your options will be pre-construction. This is when the developer has filed plans with the attorney general, has an approved offering plan, and is selling units off the plan and through a showroom. With pre-construction, buyers have the chance to put money down on a unit well ahead of closing. What’s good about this is that you can take advantage of buying at Schedule A pricing. Most quality developments see 3-6 amendments before selling through. Thus, when purchasing at schedule A, there’s an excellent chance of yielding a paper gain on your purchase. Keep in mind this won’t be as cheap as older buildings, but it will at least be less expensive than the price once construction is finished.
Depending on the rate of annual growth, you may be able to close on the property, put it back on the market, and flip it for profit. However, the downside of this is that the building’s completion could be delayed and tie up your invested capital. Also, in reality, flipping is never a good idea in New York and often does not work due to the high closing costs when buying and selling. In New York, flippers often get flipped; the best strategy is to buy and hold.
High return on investmentHigh return on investment
For investors, new developments offer the chance for substantial gains. They will still be classed as ‘new construction’ for some years after their completion, which makes for a great selling point. Also, they have all the latest amenities and designs which buyers (particularly foreign buyers) want to see in an NYC property.
However, if going to buy as an investor, then (as with any investment), you need to do your research to ensure the best chance of a good return. So long as you think micro, choose the right location, the quality, and finish is of high caliber and you time your resale, you should see a solid return on your original investment.