What the "Brexit" vote means for the NYC real estate market
As you probably know by now, the U.K. has officially voted to leave the European Union, and the "Brexit" is happening. According to reports, real estate investments were at a standstill across England even before the vote, as buyers waited to see what would happen. (Most economist thought a "yes" vote on the Brexit would cause problems for the U.K.'s finances and at least a short-term hit on its real estate market).
[***Updated June 24, 2016]
"Things are at a standstill in London, but it's not just because of the Brexit issue," Manhattan-based international real estate attorney Ed Mermelstein told Brick before the vote. "A capital gains tax was recently implemented on foreign investors in England and new visa requirements have created issues for foreigners looking to live there," said Mermelstein, who's represented international high-net worth investors, world leaders, Russian oligarchs and Chinese billionaires in private equity, commercial, and residential real estate transactions.
For investors coming from the BRIC countries—Brazil, Russia, India and China—London was a popular place free of economic and political issues, but now not as much. So what does the vote mean for New York City?
It's likely NYC will see more luxury buyers choosing our city as an alternative to London, but it will also mean fewer neighbors from Blighty.
"A stronger dollar (and a way weaker pound) will crush affordability for Brits to buy here," says appraiser and real estate data expert Jonathan Miller. "But buyers in the global super-luxury space will probably look to New York as safer a safer bet over London for now because of the unknown future impact to their economy."
It's something that's already been happening in anticipation of Brexit, says Mermelstein.
"What we're seeing in last six to eight months is an influx of investors who'd been looking to do business or invest in London coming to New York—both luxury buyers and institutional-sized investors," he says. (This could help that sector of the market which had reportedly been slowing as of late.)
"Markets detest uncertainty, and if New York real estate is perceived to be a relatively safe haven compared to options in the U.K., then that will benefit demand for properties in NYC in the near- term," says Victor Calanog, chief economist with REIS, a source for real estate market intelligence. "Currency fluctuations will mitigate that somewhat as the British pound’s decline will render U.K. properties more affordable, but I suspect most investors will want to wait and see how the U.K. and the E.U. end up stumbling through the unfolding schism."
But there are longer-term effects, too; moreover, the benefits may end up being largest in other countries. "The slower moving story that may undermine these near-term predictions is how the cloud of populist uncertainty is perceived by the market. If Britons vote to leave the E.U., what will Americans do this November? Does that mean more or less uncertainty for the U.S. and the EU area as a whole?," he says. "There are other options out there, and there is early evidence that countries like Japan—however moribund their economy has been—are benefiting from the turmoil of Brexit more than the U.S. (the Japanese Yen is up strongly against the US dollar right now)," he explains.
So, what if you're in the market for a more "reasonably priced" apartment in New York? The Brexit vote shouldn't affect usual NYC real estate transactions like million-dollar apartments, says Mermelstein. "Typically these individuals are in the market for apartments over $5 million." (And remember that foreign buyers go for condos, not co-ops.)
For now, NYC is still a safe bet—for almost everyone it seems.
"New York is still the gold standard in terms of investments," says Mermelstein.
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