Sales of Manhattan apartments - some of the priciest properties in the US - have declined by the most in almost a decade, as potential buyers hesitate following the introduction of the new tax law.
The number of co-op and condominium sales in Manhattan fell nearly 25 per cent during the first quarter compared to the same period last year, according to new research by Miller Samuel real estate appraisers and Douglas Elliman real estate brokers.
It was the largest annual decline in sales in nine years, according to the report.
The average sale price across Manhattan fell by 8.1 per cent from the year-earlier quarter, and the average price per square foot also recorded a sharp decline, falling by 18.5 per cent to $1,697.
Luxury apartment sales, considered the most expensive 10 per cent of all properties, were hit particularly hard, as were new developments.
Some buyers held off buying real estate as they grappled with the impact of US president Donald Trump’s changes to the federal tax code, which introduced a cap on the deduction of state and local taxes, including property taxes, from federal tax bills. It also reduced the size of mortgages eligible for interest deductions.
The change is expected to hit high earners in high-tax states including New York, particularly in New York City.
"People are really being cautious before investing in real estate right now," said Margery Weinstein, a partner at the law firm Ganfer & Shore in Manhattan, who advises on luxury home sales.
“It has to do with the deduction and tax planning, and people are trying to figure out the market a bit. The economy is really weakening.”
Ms Weinstein added: “Manhattan is usually the last to see the effects, but if you talk to some of the suburban realtors, they’ve definitely seen a slowdown, and now it’s reaching us.”
The average sales price of a luxury apartment fell 15.1 per cent, down from $9.36m in the first quarter of 2017 to $7.94m in the first quarter of this year, and the number of sales was down 24.1 per cent. The number of newly built apartments that went into contract fell 54 per cent.
Steve James, chief executive for New York City at Douglas Elliman, said that in addition to unease over the tax law, a rise in interest rates had also given buyers pause.
“The buyer was also looking for breathing space,” he said. “Prices had gone up, up and up, and... I think buyers want the sellers to get the message that, look, we’re not going to pay your prices.”
That pushback from buyers after several years of "aspirational pricing" could result in a correction in Manhattan housing prices, said Jonathan Miller, chief executive of Miller Samuel.
“You’ve had that in New York for the last three years, where sellers were asking prices that had no semblance of the market. The sellers were detached from the market. It wasn’t that buyers were disappearing, they were waiting,” he said.
“We’re looking at a period of a lower level of activity which will soften prices, and it has to play out over the next couple years,” Mr Miller added. “The federal government is extracting itself out of the home ownership promotion business, and that takes a year or two and then that’s it.”
Copyright The Financial Times Limited 2018