“Tight mortgage credit conditions continued to drive rental prices and activity higher.”

• The median net effective rent (face rent less landlord concessions) jumped 9.5% from $2,950 to $3,121 in the same period last year. The year-over-year-gains were consistent across all rental price indicators.
• The 2-bedroom and 3-bedroom markets outpaced their smaller counterparts,increasing 14% and 18.1% respectively over the same period.
• New rental activity (excluding lease renewals) was up 10% from 7,217 to 7,942 in the same quarter last year.
• About 7.4% of new leases had some form of landlord concession compared to the 40.5% in the prior year quarter. For those leases with concessions, the average amount was the equivalent of 1.2 months of free rent.
• Days on market—the number of days from original list date to lease signing—was at its second fastest pace of 37 days in 15 years, which is when we began tracking this metric.

“East End market conditions reflected increased activity, especially in the luxury market as listing inventory slipped”

• There were 538 sales in the third quarter, 14.7% above 469 sales total in the same period last year, but 13.1% below the prior quarter total of 619 sales.
• Median sales price was $700,000 in the third quarter, 12% higher than $625,000 in the prior year quarter. In the third quarter, 67.1% of all sales fell below the million dollar threshold consistent with the 65.9%, five-year average.
• There were 2,238 listings at the end of the third quarter, 1.5% less than the 2,271 listings in the same period last year.
• Although price indicators and sales activity increased from the same period last year, the listing discount measuring the negotiability between buyer and seller edged higher to 11.3% from 10% in the same period last year.
• Days on market, the number of days from the last price change to contract date, increased 6 days to 170 days from 164 days in the prior year quarter.

• Median rent with concessions (net effective monthly median rent), increased 4.9% to $2,970 from $2,831 in the prior year quarter.
• The number of listings on the market slipped 1.9% to 4,605 in the third quarter from 4,693 in the prior year quarter. Number of new rentals declined 6.9% to 7.998 from 8,593 over the same period last year, as more tenants likely opted for renewals.
• Approximately 8.6% of new leases had some form of landlord concession, compared to 45% in the prior year quarter.
• Of the leases with concessions, the average amount was the equivalent of 1.2 months.
• Days on market—the number of days from original list date to lease signing—was 58 days, nearly 3 weeks slower than the 38 day average of the prior year quarter.
• The absorption rate for new rentals was 1.7 months, essentially unchanged from 1.6 month in the prior year quarter but down sharply from 7.7 months in the same period two years ago.

It was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans.

It’s complicated and difficult to predict how it will affect every buyer or seller.  The National Association of Realtors ® developed a brochure with examples and different scenarios

• ·         Effective January 1, 2013, the 3.8% tax will affect some but not all income from interest, dividends, rents and capital gains.
• ·         Only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI
• ·         Applies to the Lesser of Investment income amount in excess of the AGI amount over $200,000 or 250,000

 Read more about it here.

• There was an 11% decline in the number of rental listings available, as new rental activity expanded 51.5% from the second quarter last year to the same period this year.
• A nominal 3.4% of new rental transactions received landlord concessions, averaging an equivalent of 1.2 months of free rent, compared to 60% of new rentals receiving an equivalent of 2 months free in the same period last year.
• Tenants paid a median net rental price of $2,888 per month this quarter, as compared to $2,700 in the same quarter last year, also marking a 2.8% increase from $2,808 last quarter.
• The average number of days from original list date to lease signing, or days on market,was 33 days, nearly 3 weeks faster than the 53 day average in this quarter last year.

• In the first quarter of 2011, 36.8% of rental transactions had a landlord concession.
• The average concession when provided was one full month of free rent.
• The median rental price of a Manhattan property, after considering concessions,
  if any, was $2,808, 7.4% higher than $2,616 in the prior year quarter.
• There were 25.6% fewer new rental listings available in the first quarter, falling to
  3,874 from 5,204 in the same period last year. The amount of new rental inventory
  was essentially unchanged from the prior quarter.
• Days on market—the number of days from original list date to lease signing—was
  40 days, less than half the 86 day average of the prior year quarter.

• Price indicators show stability with mixed results
  • 2010 was second only to 2008 in both Median sales price and Average sales price  which was considered the peak of the Manhattan Market
  • Median sales price for 2010 was $880,000, 3.5% above the 2009 median sales price of $850,000 and more than double than the median sales price of
  • $430,000 in 2001
  • Average sales price rose 4.6% to $1,457,255 in 2010 from $1,393,001 in 2009
  • The key reason for the increase in these metrics was due to the shift in the mix towards larger apartment sales
    • 2009 referred to as the “year of the first time buyer”
    • Entry level apartment sales were the first to gain traction
  • Average square footage of an apartment sale in 2010 was 1375 square feet.
• Number of sales above 10,000
  • There were 10,060 co-op and condo sales in 2010, the third highest one year total of the past decade
  • The 2010 total was 35.4% higher than 7,430 sales in 2009
  • Market conditions saw significant improvement in the second half of 2009
  • Listing inventories ended 2010 up 5.6% encouraging individuals who removed their listings in 2009 to re-enter the market
  • The monthly absorption rate declined to 8.6 months from 11.1 months and below the 9.3 month decade average
• Days on Market, Listing Discount fall with rise in sales activity
  • Days on market fell below the 133 day average of the past decade in 2010
    • It took an average of 119 days to sell a property in 2010
    • Down sharply from 179 days in 2009
  • Listing discount fell to 7.1% from the ten year high of 10.2% in 2009 but well above the 4.2 average of the past decade

It is no more difficult for a foreign national to obtain a mortgage than for an American citizens buying in New York City if the residence is to be a primary residence (or at least a pied-à-terre). However,  an investor who is not prepared to pay in cash and wants to obtain a mortgage for a property that will be used as an investment (i.e. with rental income), will find it difficult or impossible to find a mortgage with low rates.

The foreign national buyer, in addition to putting together a search team including a real estate broker and a mortgage lender (if necessary), should search out a New York City attorney who may be able to help save thousands of dollars in taxes or at least alert you to the tax consequences of the purchase.

For just such an investor, I recently had the pleasure of working with Michael C. Xylas of Abrams Garfinkel Margolis Bergson, LLP. One of the partners, Neil Garfinkel, recently published an extremely informative discussion, very helpful to foreign buyers, summarized below and found in its entirety here.

Foreign investors are lured to US real estate by the stability and security of the US Real Estate market.  Generally they can enjoy a steady appreciation of US real property and without the volatility of financial markets, making the prospect of economic gain through rental income and capital growth the strongest attraction.  With relative political and economic stability in the US, there are fewer barriers to foreign purchase of US real property.  The weaker dollar and lower property prices make these investments even more attractive for foreign investors.

While easy to purchase as a foreigner, real property comes with reporting and tax consequences that must be considered.

“For the purpose of US Income Tax, a Foreigner or non resident alien (NRA) is an individual who is neither a US Citizen, a green card holder nor US Tax resident.  The test to determine if an NRA qualifies for the same status as a US citizen or resident individual is based on ‘substantial presence’.  This is defined by the number of days that one must reside in the US to achieve such status.   For the purpose of US Estate and Gift Tax, the test is more subjective, based on one’s intent of permanency in a particular country.  Importantly NRA’s are nevertheless subject to estate and gift taxes on any asset that are actually situated in the US.”

It is extremely important for foreign investors to work with a qualified team of legal, accounting and brokerage/valuation advisors who understand the rules in the foreigner’s home country as they correlate with the laws of the United States; if handled correctly, the transaction will be most suitably structured with consideration for investment, accounting and tax purposes.

Consider the Structure used to purchase the asset while planning your purchase:

• Individual owner (Direct Ownership) and Single Member LLC
  • Real property used as a residence for personal use
  • Least complex
  • Required to file US Income Tax return
  • Estate Tax issues, Federal and possibly State
• Shareholder in a domestic or foreign corporation
  • Domestic Corporation
    • Provides a liability shield
    • The Corporation is the taxpayer, eliminating the need for individual annual tax returns
    • Does not avoid US Federal estate tax liability
    • Two levels of tax imposed on corporation income:
      • Corporate level tax imposed
      • 30% withholding tax on dividends paid to individual owner/imposed (this could be lower based on a favorable tax treaty between the foreign investor’s country of residence and the US)
  • Foreign Corporation
    • Limits tax liability, mostly used to avoid US income tax as well as US estate tax.
    • Pass on US real property to estate beneficiaries without paying US  taxes
    • No individual US Tax return, however
      • 30% branch profits tax against the foreign corporation ‘dividend equivalent amount’ (regardless of any current distributions to the shareholders, the tax is imposed on corporation’s taxable income that is effectively connected to a US trade or business.
  • Foreign corporation which owns a US corporation
    • More complex structure, both foreign corporation and domestic US corporation are formed
    • Foreign Corporation owns the Domestic US corporation which owns the real estate asset.
    • more costly and complicated
      • Investor is provided a limited liability shield and does not file any US tax return
      • Federal estate and gift tax are not applicable
      • Branch Profits tax not applicable
      • Ultimate investor would be transparent
      • Income tax would be taxed at a less favorable rate compared to individual ownership