By Hellen Zaboulani
Taking out a mortgage on a home purchase is now in style, even for people who have the money. Not so long ago, paying for a home by cash was considered a boost for a person’s status. Now, as per a recent article by Crain’s NY, with interest rates on mortgages so low, it’s just considered uneconomical to pay cash.
Of all the $5 million-plus home purchases made in Manhattan in the third quarter of 2019, only 44 percent were paid in cash, as per appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That is 80 percent less than last year. In fact, that is the lowest rate of cash use since 2015, when the companies first starting tracking this data. “In a rising market, cash has more power, but in a stable or falling market, it’s not as important,” said Stephen Kliegerman, president of Halstead Property Development Marketing, which is handling sales for newly built condo projects.
In 2015, the penthouse at One57 was purchased by an investment group for a $91.5 million in cash, according to public records. The same year, another condo in the same luxury building was purchased for $100.5 million in cash, a new Manhattan record at the time. By contrast, last month an apartment at One57 was purchased for $14.8 million, with a $10.08 million mortgage, and the apartment was originally asking $19 million.
As reported by Crain’s, low interest rates are not even the only factor. The stock market has made good gains, and is currently seen as a viable investment. Deeper even than that, however, the allure of a Manhattan apartment seems to have frayed a bit. Overseas buyers don’t need to flash cash to seal a deal. Financing seems like the best bet when prices are not expected to be moving upwards anytime soon. There seems to be plenty of supply, and demand is sluggish. Owners are eager to sell and willing to wait for bank approvals. News laws may also be discouraging high-end real estate sales in NYC—such as the new federal law limiting tax write-offs to $10,000. NY’s new increased closing costs for luxury properties may also be hindering investment. Clients now “are generally people who are buying the properties to occupy — we’ve lost most of our foreign buyers who generally pay cash,” said Melissa Cohn, executive vice president at Family First Funding, who leads the oversized lending division concentrating in high-end real estate.
“Five years ago, you could wait for a better option to come along, and it might be a better buyer as well,” said Brian Meier, a Christie’s International Real Estate broker, who says he’s currently working on a deal to sell a $14.5 million townhouse to a customer who’s applying for a mortgage. Now, “a better offer might not come along, so it’s advantageous to take that financed deal”.