With the London prime property market crowded out by anxious foreign money, New York represents more profitable investment opportunities, says Andrew Brecher
AN INTERESTING ASPECT of current economic woes and their impact on the London property market is that of those who do have money to invest and are keen to continue putting it into prime London property, many just can’t find the right investments. We have received numerous enquiries from people asking our advice as to whether New York property could be a better bet.
Over the long term, buying prime London property remains a sound investment. But for those wanting their investments to work harder for them in the short to medium term, other markets are now starting to look very attractive. The London property market can be a difficult one to fathom, especially for overseas investors – and one in which it’s often hard to transact profitably.
One of the main reasons recently for the strength of prices in the prime sector has been the vast amounts of foreign money rolling in to London, but this has largely been from the private and sovereign wealth of the Far East, Middle East, Europe and the Americas looking to preserve that wealth rather than looking for bargains. These types of investors won’t blink at over £3,000 per square foot for prime London residential properties and can make it hard for others to get a look in. As a result many UK and other investors are being forced to invest outside of London if they want bargains or indeed even short to medium term growth.
Today many parts of New York offer greater value for money, pound for pound, than London. The prime residential and commercial markets in New York are strong and look set to continue rising, particularly at the top end. But raising finance in New York is no easier than London and indeed particularly hard for offshore buyers.
If you want to invest in residential property and your budget allows I would favour investing in Soho/Tribeca and in Chelsea/West Greenwich Village. Prices have been increasing there in particular over the last few years and continued growth looks likely. You might consider investing by way of a joint venture with local developers in some new developments (where funding has already been sourced) rather try to buy outright.
This may prove more profitable and is often safer as you can rely on and learn from local experts and their advisors. I regularly introduce UK clients to trusted New York developers as this often gives them better returns than they would achieve on straight property purchases.
If you want to invest in commercial property, then buying retail “condominiums”, ie the reversion to retail shops often situated within multi-use buildings, which are sold as freehold interests (rather than on long leases as in London), can be an attractive proposition. You can buy very well-located retail stores with very respectable retail covenants (including banks) with 10 year lease terms and yearly rental uplifts, off yields of around 6 per cent. In London the equivalent investment would be 25 per cent more expensive. If anything, commercial property investment in Manhattan compared to London arguably makes even more sense than residential property investment.
You must find a lawyer and property agents you feel comfortable with and you must in particular get good tax advice to ensure that your purchases or investments are made in the most tax efficient manner as New York and federal tax for foreign buyers can be prohibitive if you don’t get good advice and structure your investments correctly.
Generally, prime New York property is very sensible place to put your money. The exchange rate (always a risk) currently seems stable and the property market is well regulated. New York is English speaking and is only seven hours’ plane journey away which also makes it more attractive than many foreign investment destinations. So, go West and prosper!
Andrew Brecher is joint senior partner at boutique law firm Brecher