by  Brian Silvestry

The Manhattan real estate market saw a slower than usual 4th quarter as per many reports ahead of the tax reform. I had one listing where a buyer made an offer only to withdraw that offer for fear of what the final tax reform might be. Her particular fear was that the mortgage interest deduction(MID) was going to be eliminated. The MID was amended to $750,000 which means the interest on a loan of up to $750k can be deducted. The primary residence $500,000 exemption and 1031 exchange remained in effect. However, with a lid of $10,000 on the SALT (state and local taxes) which include real estate taxes this may effect the market but not in the way that Moody’s predicts which was a 10% decrease in values.

Buyers at the low end of the Manhattan real estate market(up to $3mm) will not see any tax reform related decreases due to low inventory.  Also with interest rates rising and the MID capped at $750k you might see less buyers upgrading and/or moving to the suburbs (at least the ones with $20k-$30k in taxes). Less sellers can also help to keep the inventory low.

At the high end($6mm+) the market was already in a buyer’s market for some time, so luxury Manhattan real estate will continue along the same trend with longer days on the market and more price reductions.  I showed a penthouse not that long ago for just under $13mm which originally was asking $30mm. At the high end, buyers will continue to buy but they will have more options. The tax reform will not really affect the buyer of luxury Manhattan real estate.

In the middle($3-6mm)  is where it can get interesting. This buyer is buying a larger apartment in Manhattan instead of renting or instead of buying in the suburbs. Now with those apartments having annual taxes from $15k to $60k on average, maybe this buyer decides to continue renting due to the MID cap and more so to the $10k SALT cap. Or perhaps they decide to purchase in a tax abated building or move to a suburb where the taxes are not so high….This market could see some decreases and longer days on the market just like the upper echelons on the market.

Tax abated buildings or buildings with low annual taxes may see a surge in interest. More on that in another post…