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CON ED’S KANGAROO COURT: HOW A PRIVATE COMPANY AND OUR PUBLIC COURTS PUT CONSUMERS IN THE HOT SEAT
Alfred Fuente first heard about the strange world of Con Ed's private tribunals when he worked for the New York Legal Assistance Group (NYLAG), a nonprofit that provides free assistance to low-income customers for civil matters.
OP-ED: STATE OF THE NEW YORK CITY REAL ESTATE MARKET
IN THE FIRST HALF OF 2016
NEW YORK, New York, August 10, 2016 -- A confluence of factors is contributing to a softening of the real estate market in the first half of 2016, but it is not all bad news. Rather, the adjustment in pricing underscores the resilience of the New York City real estate market in the face of global economic headwinds. From international to local issues, the real estate market is a reflection of change and stagnation. Most recently, the United Kingdom’s momentous decision to leave the membership of the European Union, more commonly known as “Brexit”, has sent the pound tumbling to a 30-year low. The destabilizing effects of Brexit – including the resignation of Prime Minister David Cameron the following day – has increased uncertainty in global markets, leading 10-year Treasury yields to an all-time low and contributing to a drop in Japanese benchmark bonds to less than 0.1% for the first time in history. The share prices of UK REIT’s have also experienced steep losses, and fund managers have blocked investors from withdrawing from the funds. The beginning of 2016 also witnessed the cooling of the Chinese economic engine as some of the country’s largest lenders are weighed down by souring loans, an erratic open to the stock market this year, and a glut of real estate construction.
Meanwhile, on this side of the Atlantic, we are entering into the key phases of the presidential campaign season between Hillary Clinton and Donald Trump. As in past presidential elections, investment activity will turn into a familiar holding pattern as investors wait on the sidelines until Election Day. The combination of European economic turbulence, a slowing China, and the wait-and-see position of US investors is contributing to a general sense of malaise in the global economy, which in turn is impacting liquidity.
To add to these pressures, in New York City the 421-a tax abatement program has expired, leading to the lowest number of permit applications for new construction in years. Recent changes to the limited liability company (LLC) disclosure rules at the local and federal levels for all-cash purchasers in real estate transactions in excess of $3 million, along with increased withholding requirements for foreign sellers of real property from 10% to 15% of the purchase price under the Foreign Investment in Real Property Tax Act (FIRPTA), have also had – albeit very limited – impacts on the New York City residential real estate market in the first half of 2016.
According to a recent Wall Street Journal article, the president of the brokerage firm, Brown Harris Stevens, announced that there was “a correction, a serious correction” in the real estate market as year on year sales were down more than 10% compared with the same quarter in 2015. The WSJ also reported that sales of co-ops were down 26% year on year and sales of apartments for less than $1 million were also down 20%.
The long and the short of it is that this is a buyer’s market. The U.S. economy remains robust adding 287,000 jobs in June. The Federal Reserve probably won’t raise interest rates in 2016. Thirty-year fixed mortgage rates have dropped to 3.52%, almost on par with the all-time low of 3.50%, last reached in December 2012 – one month after the last presidential election. Oil prices have rallied from its 13-year low in February 2016. The LLC disclosure rules set up by the Treasury Department are set to expire in August. These are all good indications that economic anxiety may be overblown and that investment opportunities exist for savvy buyers.
From the data reported, it is unclear whether 1) the rules have had any impact on sales, and; 2) whether the Treasury Department will seek to extend implementation of the rule. Nevertheless, although the LLC disclosure requirements may have dampened the interest of some Chinese buyers, it is much more likely that the slowdown in China contributed more to the decrease of Chinese buyers in the marketplace, rather than changes to the regulations. Most importantly, however, it should be noted that the disclosure regulations were already on the books in New York City. One year ago, the De Blasio Administration required the beneficial owners of LLC’s to be revealed on the NYC-RPT Real Property Transfer Tax Return, which is filed with the city when property ownership is transferred and identifies both the seller and the buyer of the property, including the taxpayer identification numbers of the concerned parties.
The New York City real estate market is not experiencing systemic or structural problems, as it did in 2008 and 2009, but rather an appropriate curve in the real estate market cycle that is absorbing – and withstanding – changes in the global economy, as well as shifts in the local economy. New York City is the financial capital of the world, home to one of the largest – if not the largest – population of college-educated individuals with disposable incomes and prepared to enter into real estate transactions. Those same individuals are cognizant of current economic trends, and may be exercising prudence in waiting out the market a bit longer, or taking advantage of sellers and demanding concessions. This is neither unique, nor worrisome, but merely a reminder that real estate is cyclical – and that the New York City real estate market is built to last.