July sales plummeted from June levels as new transfer tax took effect
By Josh Barbanel WSJ
In June, sales of luxury residential real estate soared like a Midtown skyscraper as buyers rushed to beat a looming July 1 tax increase.
In July, they plummeted back to earth to the slowest pace in years, according to a Wall Street Journal analysis.
The Park Loggia condo building in New York City. In July, the median sale price of a Manhattan apartment fell to $970,000, the lowest level in four years. PHOTO: MARK ABRAMSON/BLOOMBERG NEWS
Post-Tax Sales SlumpManhattan luxury-home sales fell in July after a new state tax kicked in.Source: WSJ analysis of city property recordsNote: July sales each year; $2 million and up
July sales of Manhattan homes and apartments for $2 million or more shrank to the lowest level for any month in more than six years. It was the slowest pace for such sales in the month of July since 2009.
When residential sales accelerated in June, some brokers said the rush to beat the tax could trigger a broader sales rebound, as buyers who had been hesitating for many months could decide to buy. The market had been weakening for several years.
The new July sales figures cast doubt on that idea and suggest the tax surge simply sped up sales that would have happened anyway. “Consumer behavior is modified by tax-policy change, and this is exactly what we are seeing,” said Jonathan Miller, an appraiser and market analyst.
Mr. Miller said that the July slump may actually be overstating the pace of the slowdown—which he says may be nearing a bottom—after steep price cuts last year.
The new state transfer tax—a one-time payment on any property selling for at least $2 million in New York City ranges from 0.25%, or $5,000, on a $2 million sale, to 3.15% on sales of $25 million or more—triggered a rush to close. The result: Records were set for the most sales above $2 million, above $10 million and even above $25 million.
July represented a reversal, the Journal analysis found. There were 162 sales for $2 million or more in July, 62% of average monthly sales over the last decade. That compares with 685 in June. Total Manhattan sales fell from a record $4.9 billion to just under $1.54 billion, the lowest July total since 2009 and the lowest month overall since 2013.
The new Hudson Yards real-estate development in Manhattan. PHOTO: JUSTIN LANE/SHUTTERSTOCK
Getting Ahead: Manhattan luxury-home sales soared in June and plummeted in July, the month when higher taxes were imposed.Source: WSJ analysis of NYC property recordsNote: Sales for $2 million or more, filed through Aug. 31
The median sale price of a Manhattan apartment fell to $970,000, the lowest level in four years. That was down 40% from the figure in June, which was pushed up by the many high-end sales.
At the same time, sales below $2 million, which weren’t subject to the new tax, chugged along at a steady pace. These sales were up 2.5% from June and were the largest July total since 2015. The analysis includes sales filed through Aug. 31.
Donna Olshan, a broker who tracks the luxury market, said the slowdown has continued. She said the number of contracts signed for properties listed for $4 million or more fell 17% this year through August, including a steep decline this month.
She attributed much of the slowdown to the long-term effects of another change in taxation that increased the cost of owning real estate: federal limits placed on the deductibility of state and local taxes, including on New York’s relatively high property taxes. The new limits took effect in 2018.
“The crisis seems to be going sideways,” she said. Sellers who lower their prices are doing deals, she said, while other listings sit on the market. Many condo developers aren’t lowering prices, but they are telling brokers to “‘just make me an offer,’” she said.
There were 12 transactions for $10 million or more in July, a below-average month, and the lowest monthly total since 2015. The biggest was the $65.75 million purchase of a penthouse at a new condominium at 220 Central Park South by the Gordon M. Sumner, better known as the musician Sting.
But Sting’s 5,845 square foot four-story apartment wasn’t hit by the new tax, since he went into contract on it in June 2016.
The new tax rates took effect on July 1 for most transactions, but the state grandfathered in sales that were in contract by the start of the state’s fiscal year on April 1 at the old rates.
All but one of the $10 million-plus transactions, including eight sales in new developments, were exempt from the new tax.
The only one hit by the tax was the purchase of a three-bedroom co-op by Georgina Bloomberg, a daughter of former New York City Mayor Michael Bloomberg. She paid $10.2 million for an apartment on the 12th floor of 101 Central Park West, a building where she already has a home. She paid an extra $229,400 in taxes because of the higher rates, according to property records.