The real estate safe haven of Manhattan‘s ultraluxury real estate hit a snag, much like a balloon popping at the spire of its very own skyscraper’s penthouse. The world’s super rich invested in big cities world wide to protect their earnings from the troubles of the Great Recession that gripped the rest of the world starting in late 2008. Though, the rush into luxury properties started well into 2014 and has continued nearly unfettered.
Several major monetary policy changes sent foreign and cash investors to the exterior, free-falling down the side of these buildings. For one, cash investors, many of whom had earned their money in illegal activities such as human trafficking, the sex slave trade, gun running or other nefarious and undocumented manners used to have a great opportunity to launder their money in legal manners — real estate. In fact, until a couple of years ago, while the rest of the United States has clamped down on the potential financial flow of terrorist and illegal money, real estate was largely untouched. In other words, realtors did not have to (and often did not) ask questions about the source of the cash used to buy 100-million-dollar properties, particularly by foreigners.
These days, even in the United States and even in New York City, where a big portion of 9-11 occurred, foreign cash buyers, in particular, are either not allowed or questioned to the point where it would illuminate just how they made their money. Inconveniently to U.S. luxury markets, China has put bumpers on money leaving its nation as well. That was a huge chunk of the money that was being invested in the ultra-luxury markets. Not to mention that many of the once flush with cash Chinese investors lost it all with their own stock market troubles by the close of 2015 and into the open of 2016’s trading.
How Does This Shrinking Buyer Pool Change Real Estate?
Either way, the super rich investors chose high-tag real estate because it was less volatile and it allowed them to use corporations to shroud their identities. Again, that is no longer allowed. At this point, the luxury penthouses have had to split into two places, while slashing the prices to enter the market by more than 75% of their value in some cases. For instance, where there were places selling for $100 million, the value dropped to a price of $75 million, with the properties being subdivided and slashed further in cost.
Mid-2014 marked a change worldwide in the sought-after purchase of super luxury penthouse apartments. The prices have pulled back in Paris, Singapore, Dubai, London, and Moscow. For anyone in real estate it just marks the end of a party after an extended bullish period. Sometimes even the super rich need to know when the party is over because it can easily turn into a dive bar if they linger too long. Pretty much what has happened is that the ceiling is coming down on the price of real estate. Yet, it is not reaching the dive bar state of fire sales yet either. It turns out that even in Manhattan proper the price of real estate that is around $3 million is considered the prime arena because that’s where people who are living there are invested at and willing to spend to live there. Best to read the signs and keep up with the times to understand how the future of the real estate market is looking. This is just one economic indicator that signals how to invest in stocks and the markets as well as in real estate.