Stoler: 'Foreign Buyers Scarce'

A: If any broker uses the 'foreign buy side demand' argument to get you to bid more aggressively, you need to get away from that broker immediately! Now is not the time for behind-the-curve consulting for real estate investments! The reality is that confidence trumps the currency trade, always has and always will! With that said, there were plenty of deals involving foreign buyers over the past few years, especially into new developments at top dollar and delayed closing dates. At the time of contract signing, foreigners had a few things going for them: a weakening dollar allowing more house to be bought for their local dollars, a strong local economy, a strong Manhattan real estate market, and strong gains in hometown equity markets resulting in a positive wealth effect. In today's environment, they lost them all!

Readers of UD knew my feelings about foreign buyers and delayed new development closings for over a year now. Here they are if you missed them or are new to this blog:

NOV 16th, 2007 - Does A Weaker Dollar Accelerate Foreign Demand?:

There is no anecdotal evidence to support a re-acceleration in foreign demand; its mostly theory and we are left to ask the brokers what they are currently seeing for a clearer picture. In my opinion, confidence trumps the weakening dollar in the mindset of foreigners. As the US dollar weakened further in the past 3-4 months, so did the macro environment! Here is what has changed:

Credit Crunch - Bear Stearns starts it in early August

Eurozone Housing Market has been slumping*

Major write-downs in brokerages, banks, & lenders; Northern Rock is Europe's version of Countrywide Financial

Investor Confidence has clearly dipped a bit going into an uncertain bonus season

To say all of this had NO IMPACT on foreign demand / confidence for Manhattan real estate is crazy. To say that foreign demand for Manhattan real estate has accelerated because each Euro now buys $0.05 more US dollars, is crazy! As the US dollar falls against the Euro, it is more THEORY than REALITY that demand will accelerate when so much surrounding the macro environment has changed towards the negative! In short, there is no evidence that for every penny the US dollar loses against the Euro, 'X' number of additional buyers will pour into our marketplace.

OCT 9th, 2007 - New Dev Closings: A Potential Problem?:

What no one wants to discuss is:

WHAT ABOUT ALL THE BUYERS THAT SIGNED CONTRACTS ON EXPENSIVE NEW DEVELOPMENT PROPERTIES BEFORE THIS MESS HIT, AND WILL NOW CLOSE THEIR DEAL IN A LENDING ENVIRONMENT THAT IS TIGHTER & MORE EXPENSIVE?

What happens to all those new development buyers that are currently in contract, waiting for building completion to close, if the jumbo credit markets continue to be in distress and there is a much different lending world than when the original contract was signed? What if the buyer doesn't have the doc's to get the commitment, if lending/underwriting standards have tightened so much in the past 3-6 months? What if the buyer gets a much higher interest rate than was originally anticipated? What if the bonus doesn't come in as expected? What if they lose their job? What if the property becomes unaffordable? What if the appraisal doesn't come in and you signed a contract without the financing contingency?

Today, Michael Stoler writes in The Real Deal's article, "Foreign Apartment Buyers Grow Scarce":

"At my class today at the NYU Real Estate Institute, a number of prominent real estate lenders on a panel stated that they feel that many of the sales of the condominium units in these two developments as well as other planned condominium developments will fall out of contract by foreign buyers. It is much less expensive to lose 10 to 20 percent on a contract than to purchase a condominium which may have lost significant value during the economic downturn.

Sales of apartments by foreign investors are down by at least 50 percent year to date. Industry leaders say that a number of foreigners that bought downtown are being forced to sell residences as a result of the world financial crisis. During the past three years, Irish investors represented one of the largest groups who purchased Manhattan residential condominiums. The weakness of the euro to the dollar, coupled with the major loss in value in the Irish stock market, may have serious effects on the purchases of residential condominiums in New York City."

Yes. This site will always attempt to be a forward looking forum. It does nobody any good to try to look ahead by glancing into the rear view mirror! Lucky for Manhattan, I never bought into the currency trade and I never bought into the size of the buyer pool that is comprised of foreign buyers/investors. Unlucky for Manhattan, is that there was a rise in sales to foreigners here, not just as mush as you were told by brokers. This means that many foreigners who bought on speculation, excess leverage, or for a second home, may have to liquidate the asset to meet financial obligations. In times of stress, a second home is usually the first large asset to go! I've stated my stance on the over exaggerated foreign buyer theory last year! It still applies. After all, if this city's residential sales were bullied more heavily by foreign buyers, we would be in a much bigger mess with many more distressed sales than we have right now! Time will tell who was swimming naked.

• Add to del.icio.us
• Digg this!
• Add to Technorati
• Add to Reddit