11 ms·

Why New York Real Estate Is the New Swiss Bank Account

92 points by wallflower 12y ago

supahfly_remix 12y ago
Do these purchases affect the NY real estate market as a whole (other than say, skewing statistics)? For lower end housing stock, homeowners usually "jump" up to more expensive properties as they become more financially stable or as they need the room. This market seems entirely disconnected from that, but I'm not sure.
- 001sky 12y ago
  Yes, these are only the headline grabbers. This is an old story. London has had this problem for over a decade.
- michaelochurch 12y ago
  Price inelasticity is worth noting. A small amount of supply destruction will make prices spike significantly. That's why NYC's legacy rent control system is such an issue. It only affects about 1-2% of apartments, but that probably pushes rents up 50% or more. So, yes, the fact that global-elite billionaire scumbags use our real estate to launder their drug/blood money is a huge issue. For lower end housing stock, homeowners usually "jump" up to more expensive properties as they become more financially stable or as they need the room. That seems to be a Boomer thing. They bought the 3000 SF houses that are impossible to maintain unless you hire maids (which Americans don't like to do, even though at $20/h they're still cheaper than doing your own cleaning). I think the young generation values freedom and experiences (e.g. travel) more than stuff and space. Frankly, I find McMansions depressing. Unfortunately, in many cities it's impossible to get a 1000 SF place at an appropriate price. You end up buying or renting 2000+ because that's all there is, unless you're talking about seriously defective housing (e.g. no laundry in the building, no dishwasher.)
  - pierrealexandre 12y ago
    Isn't the phenomenon you describe extreme price elasticity rather than inelasticity? Also, any source for your assertion about the effect of rent control on rents in NYC? I'm very interested in this if you have it.
    - kyllo 12y ago
      The term "inelasticity" describes consumer demand, rather than the price. As a good becomes increasingly scarce, the price will rise. But when demand is highly "elastic," the price rise will be mitigated by consumers changing their behavior or seeking a substitute good (in this scenario, by relocating their residence away from NYC). In other words, demand elasticity means that consumers can decide not to pay the higher price because they have alternative options. In the case of NYC housing, the demand is inelastic, meaning that the price increases stick because enough people do not have any acceptable alternative to paying it (likely because employment in their chosen profession requires being physically located in or near Manhattan).
  - supahfly_remix 12y ago
    Agreed that money laundering is a big issue, but are you saying that these properties affect prices for homes purchased by normal people? Are these properties are affected by rent control, or were you using that as an example?
jzwinck 12y ago
About five years ago I saw a chalkboard outside a trendy SoHo NYC apartment. For sale: 2 million euros. The same story is playing out in London as well, with the consequence that many central flats lay empty most of the time, owned by foreigners who would rather lose out on some rental income than risk the hoi polloi damaging their artwork. By the way, in NYC it is usually not as hard to find the true, human owner(s) of apartments purchased by "corporations" as the article implies. It takes more than a quick Google search, but the information is usually around if someone wants to know about a particular unit.
- junto 12y ago
  A new expression for me - "Hoi Polloi". http://en.wikipedia.org/wiki/Hoi_polloi http://en.wikipedia.org/wiki/Hoi_polloi
  - DrJokepu 12y ago
    This is actually not uncommon in British English.
  - logicallee 12y ago
    it's problematic, because people use it to mean the commoners (the prolitariat) and the snooty (the few). It doesn't matter that the latter is technically wrong - it's where you're likely to hear it in conversation. it's like the phrase "fulsome praise". Can't really use it. is it lavish, or overdone/excessive? http://www.merriam-webster.com/dictionary/fulsome http://www.merriam-webster.com/dictionary/fulsome
    - deathcakes 12y ago
      Also it is frequently misused - hoi polloi means 'the masses' but people always say 'the hoi polloi', meaning the the masses. </pedantry>
      - logicallee 12y ago
        so use hoi polloi 'correctly' as a noun in a sentence, without 'the' for me. This pedantic objection is just another reason not to ever use the phrase. You just can't. :)
stephenitis 12y ago
They should buy SF real estate and further skew things here...
- swang 12y ago
  Most likely, they are already here buying up property.
wiradikusuma 12y ago
Shouldn't a huge cash transaction trigger suspicion from IRS/whatever agency interested in knowing the whereabouts of the money? E.g. in Malaysia, the reason why people buy cars (let alone properties) in installments (even they can afford cash) is to avoid tax dept come knocking their door.
- pmorici 12y ago
  These are not American citizens so the IRS wouldn't care.
- abc123xyz 12y ago
  I read before somewhere that US estate agents managed to get an exemption from various KYC and money laundering requirements...
- pessimizer 12y ago
  "It's a sophisticated, well-oiled system that rarely requires crude subterfuge. Though U.S. authorities track all transfers over $10,000, a wire into a real-estate lawyer’s escrow account should look perfectly routine. 'A lot of times, I don’t even know where my clients are from,' says the lawyer Bruce Cohen. 'But I know that certain countries are very careful about the money that leaves their country.' "There is nothing illegal—at least from the destination nation’s perspective—about sending money from an anonymous offshore bank account to purchase property in America. On the contrary, it’s an everyday occurrence. That is precisely why experts say that property investment is a favored route for money laundering, a crime that depends on the outward appearance of legitimacy. The laundering process typically happens in stages: Illegal cash enters the world financial system somewhere and is funneled into a maze of accounts and shell companies, a process called 'layering.' Finally, at the other end, funds are integrated into a seemingly respectable investment—like a luxury condo." (TFA)
sanmon3186 12y ago
In India, we witness both new as well old/real Swiss Bank being used to stash illegal money. Given land/capita availability, real estate is skyrocketing in most parts. A descent independent house in tier-2 cities in India is costlier than what one would pay in NYC (I don't mean Manhattan). Middle class, say a school teacher, just can't afford a house in most of cities while rich are investing in lands, houses and other forms of real-estate.
yummyfajitas 12y ago
People are investing money in housing for the same reason they invest in gold: they aren't making more of it. There is a simple solution to this. NY could allow as much new housing to be built as the market would bear. They could allow existing stock to be properly utilized, rather than giving long term tenants quasi-property rights (which also hinders new construction of anything other than luxury condos). The more money those evil foreign devils pour into the market, the more money local construction workers will happily take from them.
- imaginenore 12y ago
  Gold is actually mined at around 2,500 tons per year,thus devaluing it by around 2% (depending on the estimates of the total gold hoarded, which is fuzzy). The amount of gold on our planet is quite staggering, including oceans and deep water sediments.
- pjc50 12y ago
  Which unused corner of Manhattan do you propose building on?
  - yummyfajitas 12y ago
    Whichever corner contains buildings owned by people willing to sell to developers.
jhonovich 12y ago
This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents).
- huhtenberg 12y ago
  The problem of course is that it's unclear when it will burst. Take Vancouver, Canada real-estate market, for example. It's the closest Canadian city to Hong-Kong / China, it's friendly to foreigners buying properties and it has a sizable Chinese population that can act as a proxy if needed. The house prices were inflating from late 90s. In mid '00s it became a common understanding that there's a bubble. A modest 500 sqft flat in downtown Vancouver was going for close to 500K and proper houses in decent areas were in 2-3 million range. Our place appreciated over 100% in a matter of 4 years. Tons of apartments in downtown and new condo developments sat empty, which was especially easy to tell at night. But the bubble wasn't bursting. Nor was it deflating. Moreover, tour buses driving mainland Chinese suits around open houses on their 2-3 day "buy all!" flash visits transformed from a one-off exotic thing to the routine. Local government doesn't do a shit about this. They are happy as this feeds the construction industry, creates jobs and they also get to tax all these new developments. Their hand is stuck in a cookie jar. In the end all these buildings are just a way to park the foreign money and so the Vancouver housing bubble is tied directly to the state of Chinese economy. The only way for it to subside is for China to have an economic crisis. It is a greater fool situation indeed, but regrettably it unfolds at a state level.
- michaelochurch 12y ago
  This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents). The 2014-era housing bubble is driven not by runaway money-printing as in 2008, but by foreign corruption. Silicon Valley is expensive because every thieving Chinese official has a house out there in case things go seriously wrong (corruption is a death-penalty offense in China). As it turns out, rich people will pay a nearly-infinite amount of money to not die. We're not talking about tulip bulbs. We're talking about personal safety for some seriously bad people who are at risk of being killed by their own people (who they've been robbing for decades) and who, quite frankly, deserve to die.
JacobAldridge 12y ago
Single Page: http://nymag.com/news/features/foreigners-hiding-money-new-york-real-estate-2014-6/#print http://nymag.com/news/features/foreigners-hiding-money-new-y...
JacobAldridge 12y ago
"The latest [Knight Frank report] produces the curiously precise estimate that there are 167,669 individuals in the world who are “ultrahigh net worth,” with assets exceeding $30 million." I'm amazed at how few people sit in that strata - $30 million gets you into the Top 0.0024% of the world's population. While it's twice my (inflation-adjusted) financial goal, I still would have thought a larger number of people would be there. Perhaps this fails to account for assets spread across a number of corporate entities?
- alexjeffrey 12y ago
  or perhaps you don't realise how privileged you are in that even $1 million is attainable.
  - JacobAldridge 12y ago
    I'm curious about what in my comment suggests I don't appreciate the fortune that was simply being born into a first world democracy? Even if we just use the ~1Bn people with that privilege, I remain surprised at Knight Frank's number.
    - pessimizer 12y ago
      >the fortune that was simply being born into a first world democracy Neither necessary nor sufficient. It's easier to get that kind of money if you ware born into a small elite in a resource-rich and/or poverty stricken country.
      - JacobAldridge 12y ago
        Absolutely - alas, my 'privilege' is the first world democracy kind, as I was not fated to be born the son of a Russian oligarch on the cusp of the collapsing Soviet Union. Which is for the best, because then I likely would have ended up supporting Chelsea in the English Premier League. [Edit] Further to pessimizer's reply below, but responding here so the thread doesn't disintegrate. Note that the only reason I raised "first world democracy" was because Alex raised how "privileged" I am. My "privilege" is where I was born, and that was in a first world democracy. I think I completely agree with your point that being born where I was doesn't of necessity deliver me $15M or $30M, which is why I keep putting "privilege" in air quotes.
pessimizer 12y ago
Interest rates are too low, the stock market is overvalued, and the financial system is untrustworthy. There's nowhere to put money and get a decent return on it with no prospect of completely getting wiped out other than real estate. Also, if you can buy in or near a "fortress" area like Manhattan or San Francisco, and you'll never need the cash, you can just wait for the next bubble if prices/rents collapse. edit: reading more of this, I'd say the dumb money is going towards extravagant luxury, though. Those $30M apartments could fall to $3M and never rise again. I'm talking more single-family housing, and those buyers have actually slowed down considerably lately because prices have gotten too high. edit2: I've been drawn in - this is a very good article. The tl;dr is that world scum is using NYC luxury real estate to launder money and avoid taxes. What I thought was "dumb money" is dictators, oligarchs, etc., who aren't looking for profit, just trying to get their ill-gotten gains out of their home countries.
- deleted 12y ago
  [deleted]
a8da6b0c91d 12y ago
LOL, the feds browbeat the Swiss into coughing up account information but then allow blatant tax evasion on a grander scale inside American borders. Might makes right, I guess.
- Scoundreller 12y ago
  Didn't you know? Paying taxes is for Americans.
cpwright 12y ago
As an NYS (but not NYC resident), I find the following quote the most offensive part of the entire article: >In New York, by contrast, buyers of new construction often qualify for a tax abatement. At One57, currently the city’s most expensive new address, the tax break amounts to around 94 percent. A Times analysis estimated that its priciest penthouse, which is reportedly in contract for more than $90 million, would initially be billed less than $1,500 a month. So basically, the foreign absentee buyers of these luxury buildings are able to avoid paying property taxes on most of the assessed value, forcing the "regular" residents or landlords to pay more than they would otherwise have to if these apartments were taxed at the same rate.
- jcampbell1 12y ago
  I agree it is a problem, but the foreign buyers did fund the construction of "affordable housing". I think the policy of granting tax abatements for developing affordable housing is nuts, but some of that $90 million was used to help the working class.
  - hyperliner 12y ago
    I agree. This is no different than state governments granting companies generous tax relief for the "creation of jobs," which more times than not are a few hundreds of minimum wage jobs. Doing the math, it does not make sense, but I guess the rationale is that you get $1500 or zero. I am not really sure at what cost though.
imgabe 12y ago
I think this is the beginning of the end for New York and other cities where this is happening. Why is New York real estate valuable in the first place? Because a lot of people want to live there. Why do they want to live there? Because there's a lot of other people there, and those people can afford them various opportunities in their chosen field. If New York becomes a wasteland of empty apartments held by overseas billionaires, none of the people that make New York a desirable place to live (and thus, a valuable apartment to own) are going to be there making it desirable (and thus, making the apartments valuable). Everyone I know who's living in New York can't wait to leave. It's a miserable place to be unless you're a billionaire. These people are destroying the value of their own investments just by making the investment in the first place.
- hullo 12y ago
  No offense, but you should really try and meet more people, if everyone you know feels that way. Maybe your peer set isn't diverse enough? Or seek geographic variance? Everybody here seems to be talking about multi million dollar SoHo lofts and what not, which are honestly not even a little bit relevant to the lives of most of the millions of people in the city.
- cddotdotslash 12y ago
  "A miserable place to be unless you're a billionaire." This is such a vast exaggeration, it's difficult to take your comment seriously. Is New York expensive? Yes. Is it impossible to live here, and have an enjoyable experience on $60,000/yr (even less with some sacrifices)? Not in the slightest.
  - imgabe 12y ago
    "not impossible" isn't nearly the same thing as "desirable" or "worthwhile". If the strongest endorsement you can make is that it's possible to live there, that really isn't much of a recommendation.
    - cddotdotslash 12y ago
djb_hackernews 12y ago
It's not just New York. In Boston lots of foreign investors, mostly Chinese. They are coming in over asking prices, with cash. Basically impossible to compete with. Redfin recently released a housing report[0] that acknowledged the recent "recovery" as fueled by investors, regular home buyers are still on the sidelines. This is clear to me via anecdote, I've heard from friends and online forums from people in the JP area where multi-families are being bought in droves by corporate landlords. It seems to me that the historical pattern of real estate transactions being between generations and socio-economic classes will be no more. If the corporate landlords want to sell, they'll be selling their portfolios to other investor types. I wonder if in another 20 years we will have an exodus to the 'burbs similar to the 50's and 60's. [0] http://www.redfin.com/research/reports/real-time-price-tracker#.U7F6hUBDuA- http://www.redfin.com/research/reports/real-time-price-track...
restalis 12y ago
"And so New Yorkers with garden-variety affluence—the kind of buyers who require mortgages—are facing disheartening price wars..." "Competition will continue to drive the wealthy—foreign and domestic—to Brooklyn and middle-class buyers to despair." Add to that the fact that a young middle-class lads and gals start out having already an high debt from the acquired education...

92 points by wallflower 12y ago

Do these purchases affect the NY real estate market as a whole (other than say, skewing statistics)? For lower end housing stock, homeowners usually "jump" up to more expensive properties as they become more financially stable or as they need the room. This market seems entirely disconnected from that, but I'm not sure.

001sky 12y ago
Yes, these are only the headline grabbers. This is an old story. London has had this problem for over a decade.
michaelochurch 12y ago
Price inelasticity is worth noting. A small amount of supply destruction will make prices spike significantly. That's why NYC's legacy rent control system is such an issue. It only affects about 1-2% of apartments, but that probably pushes rents up 50% or more. So, yes, the fact that global-elite billionaire scumbags use our real estate to launder their drug/blood money is a huge issue. For lower end housing stock, homeowners usually "jump" up to more expensive properties as they become more financially stable or as they need the room. That seems to be a Boomer thing. They bought the 3000 SF houses that are impossible to maintain unless you hire maids (which Americans don't like to do, even though at $20/h they're still cheaper than doing your own cleaning). I think the young generation values freedom and experiences (e.g. travel) more than stuff and space. Frankly, I find McMansions depressing. Unfortunately, in many cities it's impossible to get a 1000 SF place at an appropriate price. You end up buying or renting 2000+ because that's all there is, unless you're talking about seriously defective housing (e.g. no laundry in the building, no dishwasher.)
- pierrealexandre 12y ago
  Isn't the phenomenon you describe extreme price elasticity rather than inelasticity? Also, any source for your assertion about the effect of rent control on rents in NYC? I'm very interested in this if you have it.
  - kyllo 12y ago
    The term "inelasticity" describes consumer demand, rather than the price. As a good becomes increasingly scarce, the price will rise. But when demand is highly "elastic," the price rise will be mitigated by consumers changing their behavior or seeking a substitute good (in this scenario, by relocating their residence away from NYC). In other words, demand elasticity means that consumers can decide not to pay the higher price because they have alternative options. In the case of NYC housing, the demand is inelastic, meaning that the price increases stick because enough people do not have any acceptable alternative to paying it (likely because employment in their chosen profession requires being physically located in or near Manhattan).
- supahfly_remix 12y ago
  Agreed that money laundering is a big issue, but are you saying that these properties affect prices for homes purchased by normal people? Are these properties are affected by rent control, or were you using that as an example?

jzwinck 12y ago

About five years ago I saw a chalkboard outside a trendy SoHo NYC apartment. For sale: 2 million euros. The same story is playing out in London as well, with the consequence that many central flats lay empty most of the time, owned by foreigners who would rather lose out on some rental income than risk the hoi polloi damaging their artwork. By the way, in NYC it is usually not as hard to find the true, human owner(s) of apartments purchased by "corporations" as the article implies. It takes more than a quick Google search, but the information is usually around if someone wants to know about a particular unit.

junto 12y ago
A new expression for me - "Hoi Polloi". http://en.wikipedia.org/wiki/Hoi_polloi http://en.wikipedia.org/wiki/Hoi_polloi
- DrJokepu 12y ago
  This is actually not uncommon in British English.
- logicallee 12y ago
  it's problematic, because people use it to mean the commoners (the prolitariat) and the snooty (the few). It doesn't matter that the latter is technically wrong - it's where you're likely to hear it in conversation. it's like the phrase "fulsome praise". Can't really use it. is it lavish, or overdone/excessive? http://www.merriam-webster.com/dictionary/fulsome http://www.merriam-webster.com/dictionary/fulsome
  - deathcakes 12y ago
    Also it is frequently misused - hoi polloi means 'the masses' but people always say 'the hoi polloi', meaning the the masses. </pedantry>
    - logicallee 12y ago
      so use hoi polloi 'correctly' as a noun in a sentence, without 'the' for me. This pedantic objection is just another reason not to ever use the phrase. You just can't. :)

stephenitis 12y ago

They should buy SF real estate and further skew things here...

swang 12y ago
Most likely, they are already here buying up property.

wiradikusuma 12y ago

Shouldn't a huge cash transaction trigger suspicion from IRS/whatever agency interested in knowing the whereabouts of the money? E.g. in Malaysia, the reason why people buy cars (let alone properties) in installments (even they can afford cash) is to avoid tax dept come knocking their door.

pmorici 12y ago
These are not American citizens so the IRS wouldn't care.
abc123xyz 12y ago
I read before somewhere that US estate agents managed to get an exemption from various KYC and money laundering requirements...
pessimizer 12y ago
"It's a sophisticated, well-oiled system that rarely requires crude subterfuge. Though U.S. authorities track all transfers over $10,000, a wire into a real-estate lawyer’s escrow account should look perfectly routine. 'A lot of times, I don’t even know where my clients are from,' says the lawyer Bruce Cohen. 'But I know that certain countries are very careful about the money that leaves their country.' "There is nothing illegal—at least from the destination nation’s perspective—about sending money from an anonymous offshore bank account to purchase property in America. On the contrary, it’s an everyday occurrence. That is precisely why experts say that property investment is a favored route for money laundering, a crime that depends on the outward appearance of legitimacy. The laundering process typically happens in stages: Illegal cash enters the world financial system somewhere and is funneled into a maze of accounts and shell companies, a process called 'layering.' Finally, at the other end, funds are integrated into a seemingly respectable investment—like a luxury condo." (TFA)

sanmon3186 12y ago

In India, we witness both new as well old/real Swiss Bank being used to stash illegal money. Given land/capita availability, real estate is skyrocketing in most parts. A descent independent house in tier-2 cities in India is costlier than what one would pay in NYC (I don't mean Manhattan). Middle class, say a school teacher, just can't afford a house in most of cities while rich are investing in lands, houses and other forms of real-estate.

yummyfajitas 12y ago

People are investing money in housing for the same reason they invest in gold: they aren't making more of it. There is a simple solution to this. NY could allow as much new housing to be built as the market would bear. They could allow existing stock to be properly utilized, rather than giving long term tenants quasi-property rights (which also hinders new construction of anything other than luxury condos). The more money those evil foreign devils pour into the market, the more money local construction workers will happily take from them.

imaginenore 12y ago
Gold is actually mined at around 2,500 tons per year,thus devaluing it by around 2% (depending on the estimates of the total gold hoarded, which is fuzzy). The amount of gold on our planet is quite staggering, including oceans and deep water sediments.
pjc50 12y ago
Which unused corner of Manhattan do you propose building on?
- yummyfajitas 12y ago
  Whichever corner contains buildings owned by people willing to sell to developers.

jhonovich 12y ago

This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents).

huhtenberg 12y ago
The problem of course is that it's unclear when it will burst. Take Vancouver, Canada real-estate market, for example. It's the closest Canadian city to Hong-Kong / China, it's friendly to foreigners buying properties and it has a sizable Chinese population that can act as a proxy if needed. The house prices were inflating from late 90s. In mid '00s it became a common understanding that there's a bubble. A modest 500 sqft flat in downtown Vancouver was going for close to 500K and proper houses in decent areas were in 2-3 million range. Our place appreciated over 100% in a matter of 4 years. Tons of apartments in downtown and new condo developments sat empty, which was especially easy to tell at night. But the bubble wasn't bursting. Nor was it deflating. Moreover, tour buses driving mainland Chinese suits around open houses on their 2-3 day "buy all!" flash visits transformed from a one-off exotic thing to the routine. Local government doesn't do a shit about this. They are happy as this feeds the construction industry, creates jobs and they also get to tax all these new developments. Their hand is stuck in a cookie jar. In the end all these buildings are just a way to park the foreign money and so the Vancouver housing bubble is tied directly to the state of Chinese economy. The only way for it to subside is for China to have an economic crisis. It is a greater fool situation indeed, but regrettably it unfolds at a state level.
michaelochurch 12y ago
This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents). The 2014-era housing bubble is driven not by runaway money-printing as in 2008, but by foreign corruption. Silicon Valley is expensive because every thieving Chinese official has a house out there in case things go seriously wrong (corruption is a death-penalty offense in China). As it turns out, rich people will pay a nearly-infinite amount of money to not die. We're not talking about tulip bulbs. We're talking about personal safety for some seriously bad people who are at risk of being killed by their own people (who they've been robbing for decades) and who, quite frankly, deserve to die.

JacobAldridge 12y ago

Single Page: http://nymag.com/news/features/foreigners-hiding-money-new-york-real-estate-2014-6/#print http://nymag.com/news/features/foreigners-hiding-money-new-y...

JacobAldridge 12y ago

"The latest [Knight Frank report] produces the curiously precise estimate that there are 167,669 individuals in the world who are “ultrahigh net worth,” with assets exceeding $30 million." I'm amazed at how few people sit in that strata - $30 million gets you into the Top 0.0024% of the world's population. While it's twice my (inflation-adjusted) financial goal, I still would have thought a larger number of people would be there. Perhaps this fails to account for assets spread across a number of corporate entities?

alexjeffrey 12y ago
or perhaps you don't realise how privileged you are in that even $1 million is attainable.
- JacobAldridge 12y ago
  I'm curious about what in my comment suggests I don't appreciate the fortune that was simply being born into a first world democracy? Even if we just use the ~1Bn people with that privilege, I remain surprised at Knight Frank's number.
  - pessimizer 12y ago
    >the fortune that was simply being born into a first world democracy Neither necessary nor sufficient. It's easier to get that kind of money if you ware born into a small elite in a resource-rich and/or poverty stricken country.
    - JacobAldridge 12y ago
      Absolutely - alas, my 'privilege' is the first world democracy kind, as I was not fated to be born the son of a Russian oligarch on the cusp of the collapsing Soviet Union. Which is for the best, because then I likely would have ended up supporting Chelsea in the English Premier League. [Edit] Further to pessimizer's reply below, but responding here so the thread doesn't disintegrate. Note that the only reason I raised "first world democracy" was because Alex raised how "privileged" I am. My "privilege" is where I was born, and that was in a first world democracy. I think I completely agree with your point that being born where I was doesn't of necessity deliver me $15M or $30M, which is why I keep putting "privilege" in air quotes.

pessimizer 12y ago

Interest rates are too low, the stock market is overvalued, and the financial system is untrustworthy. There's nowhere to put money and get a decent return on it with no prospect of completely getting wiped out other than real estate. Also, if you can buy in or near a "fortress" area like Manhattan or San Francisco, and you'll never need the cash, you can just wait for the next bubble if prices/rents collapse. edit: reading more of this, I'd say the dumb money is going towards extravagant luxury, though. Those $30M apartments could fall to $3M and never rise again. I'm talking more single-family housing, and those buyers have actually slowed down considerably lately because prices have gotten too high. edit2: I've been drawn in - this is a very good article. The tl;dr is that world scum is using NYC luxury real estate to launder money and avoid taxes. What I thought was "dumb money" is dictators, oligarchs, etc., who aren't looking for profit, just trying to get their ill-gotten gains out of their home countries.

deleted 12y ago
[deleted]

a8da6b0c91d 12y ago

LOL, the feds browbeat the Swiss into coughing up account information but then allow blatant tax evasion on a grander scale inside American borders. Might makes right, I guess.

Scoundreller 12y ago
Didn't you know? Paying taxes is for Americans.

cpwright 12y ago

As an NYS (but not NYC resident), I find the following quote the most offensive part of the entire article: >In New York, by contrast, buyers of new construction often qualify for a tax abatement. At One57, currently the city’s most expensive new address, the tax break amounts to around 94 percent. A Times analysis estimated that its priciest penthouse, which is reportedly in contract for more than $90 million, would initially be billed less than $1,500 a month. So basically, the foreign absentee buyers of these luxury buildings are able to avoid paying property taxes on most of the assessed value, forcing the "regular" residents or landlords to pay more than they would otherwise have to if these apartments were taxed at the same rate.

jcampbell1 12y ago
I agree it is a problem, but the foreign buyers did fund the construction of "affordable housing". I think the policy of granting tax abatements for developing affordable housing is nuts, but some of that $90 million was used to help the working class.
- hyperliner 12y ago
  I agree. This is no different than state governments granting companies generous tax relief for the "creation of jobs," which more times than not are a few hundreds of minimum wage jobs. Doing the math, it does not make sense, but I guess the rationale is that you get $1500 or zero. I am not really sure at what cost though.

imgabe 12y ago

I think this is the beginning of the end for New York and other cities where this is happening. Why is New York real estate valuable in the first place? Because a lot of people want to live there. Why do they want to live there? Because there's a lot of other people there, and those people can afford them various opportunities in their chosen field. If New York becomes a wasteland of empty apartments held by overseas billionaires, none of the people that make New York a desirable place to live (and thus, a valuable apartment to own) are going to be there making it desirable (and thus, making the apartments valuable). Everyone I know who's living in New York can't wait to leave. It's a miserable place to be unless you're a billionaire. These people are destroying the value of their own investments just by making the investment in the first place.

hullo 12y ago
No offense, but you should really try and meet more people, if everyone you know feels that way. Maybe your peer set isn't diverse enough? Or seek geographic variance? Everybody here seems to be talking about multi million dollar SoHo lofts and what not, which are honestly not even a little bit relevant to the lives of most of the millions of people in the city.
cddotdotslash 12y ago
"A miserable place to be unless you're a billionaire." This is such a vast exaggeration, it's difficult to take your comment seriously. Is New York expensive? Yes. Is it impossible to live here, and have an enjoyable experience on $60,000/yr (even less with some sacrifices)? Not in the slightest.
- imgabe 12y ago
  "not impossible" isn't nearly the same thing as "desirable" or "worthwhile". If the strongest endorsement you can make is that it's possible to live there, that really isn't much of a recommendation.
  - cddotdotslash 12y ago

djb_hackernews 12y ago

It's not just New York. In Boston lots of foreign investors, mostly Chinese. They are coming in over asking prices, with cash. Basically impossible to compete with. Redfin recently released a housing report[0] that acknowledged the recent "recovery" as fueled by investors, regular home buyers are still on the sidelines. This is clear to me via anecdote, I've heard from friends and online forums from people in the JP area where multi-families are being bought in droves by corporate landlords. It seems to me that the historical pattern of real estate transactions being between generations and socio-economic classes will be no more. If the corporate landlords want to sell, they'll be selling their portfolios to other investor types. I wonder if in another 20 years we will have an exodus to the 'burbs similar to the 50's and 60's. [0] http://www.redfin.com/research/reports/real-time-price-tracker#.U7F6hUBDuA- http://www.redfin.com/research/reports/real-time-price-track...

restalis 12y ago

"And so New Yorkers with garden-variety affluence—the kind of buyers who require mortgages—are facing disheartening price wars..." "Competition will continue to drive the wealthy—foreign and domestic—to Brooklyn and middle-class buyers to despair." Add to that the fact that a young middle-class lads and gals start out having already an high debt from the acquired education...