For the moment, at least, New York and London remain the grandes dames of the property world. There may be excitement over growth economies, and fears over a relative decline in the west, but the super-rich still want to park their money in these two “old world” metropolises.
Together with Hong Kong, New York and London offer some of the world’s most expensive real estate and their property markets have held firm amid chaos elsewhere, to the point where they have dislocated from their national counterparts. Both cities offer lifestyle and business opportunities – coupled with security – that attract investment from around the world. So it follows that the conventions and processes surrounding property purchase would be much the same in these two hubs – the language of wealth being an international one – and yet this is far from the case.
Last month Savills sent Lindsay Cuthill, head of their south-west London region, to shadow brokers at Stribling & Associates in New York. Elizabeth Stribling, founder and president of Stribling, describes the two estate agencies as “natural realty partners” serving “the same demanding upper end clientele”, and since 2010 they have benefited from a formal association. However, the three-week residency revealed as many differences as similarities between the two markets and the working practices of estate agents either side of the Atlantic.
What both cities certainly do share is a growing obsession with super-prime development, and their flashiest projects are pitched competitively. One 57, known colloquially as “New York’s answer to London’s One Hyde Park” is due to open in autumn 2013. The duplex penthouse here is priced at $115m (a three-storey penthouse at the latter sold for £136m last year) and pricing has been between $3,500 and $9,000 per sq ft (One Hyde Park has been achieving £6,000 per sq ft). One 57 will be New York City’s tallest residential building and, with its flat front and curved crown, will loom like a vast periscope, with views spanning the length of Central Park and beyond.
Presentations from Extell, the developers of One 57, are deadpan, bordering on aggressive, and bristling with optimism about international buyers. Like London, New York has seen some high-profile sales to wealthy Russians – last month a penthouse at 15 Central Park West sold to Ekaterina Rybolovleva, the 22-year-old daughter of Russian billionaire Dmitry Rybolovlev, for $88m – but the hype can be misleading.
According to research compiled exclusively for the Financial Times by Knight Frank, foreign buyers in London now constitute 85 per cent of super-prime purchases compared with 50 per cent in New York. And a report published last November by the same estate agents, which ranked the top five prime global markets by purchaser motive – business, education, tax, lifestyle, security and investment – featured New York just once, as number one for business. Much has been made of South American investment in major US cities but Knight Frank’s research identifies the UK, France and Italy as the three most important nationalities currently investing in New York property.
Domestic buyers constitute a greater proportion of sales in New York for a number of reasons. For a start, the weak sterling has made UK property look relatively cheap to foreign buyers, while the strength of the dollar has held back the US market in this respect. A lot also comes down to geography: wealthy Russians look to London because of its proximity to Moscow and its small difference in time zone, and it is for these reasons that Chinese buyers have so far shown a preference for West Coast cities like San Francisco. Over the last year, London has also attracted Greek and Italian investors keen to find a haven amid concerns over the eurozone’s economic health, and others reacting to political upheaval in the Middle East.
Last, and by no means least, are the unusual, and in many respects Byzantine, processes involved with buying property in New York. Although there are no restrictions as such for foreign buyers, the system can be off-putting in practice.
With townhouses scarce, and condominiums a relatively new concept in New York, about 70 per cent of apartments for sale in the city are co-operatives. Whereas purchasers of townhouses and condominiums own their property outright, the purchaser of a co-op apartment owns “shares” in the corporation that owns the building, which in turn allows them a long-term proprietary lease. The co-op board has a huge amount of control over sales and the running costs of the building (some of the larger co-ops employ a 40- or 50-strong staff, including liveried bellhops and security guards), and is able to stipulate a range of ground rules, such as what can be stored on balconies or the colour of each front door.
Buying into a co-op can be a daunting and, in many cases, traumatic experience. As well as having to present detailed financial statements – some co-ops require potential buyers to have two or three times the asking price in the bank – applicants must meet the board’s approval at an interview. There are tales of hopeful candidates being turned down for wearing jeans to the meeting, or because of conflicting business interests or social feuds with someone on the board, and in many cases people are required to bring pets along (insider tip: slip the Jack Russell a valium).
“Our advice to applicants usually consists of: dress like you are going to your great auntie’s funeral, be as boring as hell – and ask no questions,” says Kirk Henckels, executive vice president of Stribling.
Occasionally rejections result in high profile disputes or legal cases. Back in 2007, a high-profile celebrity sued the board of their co-op, claiming that they wrongfully blocked their purchase of another apartment in the same building. But legal action is rare since, frankly, if the board of a co-op rejects you after interview would you still want to live next door to its members?
Co-ops may be baffling to the majority of international, and indeed American, buyers, but they have a huge influence in New York. The process of financial screening has been credited as helping to protect the city’s property market throughout the economic crisis, and – let’s not forget – the bureaucracy and diplomacy involved also helps to keep brokers in business.
Unlike London agents, who are paid a salary by their firm, New York brokers are in effect self-employed, and therefore not shackled to a nine-to-five working day. This degree of flexibility encourages many of them to continue working well beyond pensionable age, a trend that is related to a wider appreciation of age and experience in the US, compared to the UK, where we like our estate agents – and politicians – baby-faced.
“It means they are able to channel their energies when it really matters to the day and when there’s a bit of slack time to use that time differently,” Cuthill says. “Being obliged to sit in the office in case the phone rings isn’t the best use of highly motivated selling people.”
New York brokers hold a position of power, and most have had other careers, as lawyers, architects or property developers, before moving into real estate. “Our brokers are literally entrepreneurs under a very large brokerage umbrella,” Stribling says. “I think the freedom and confidence that we place in them is much greater, and I hadn’t realised how strictly supervised the agents were at Savills.”
There are also different expectations where territory is concerned. In London agents specialise in a locality, and if a client in Fulham, say, suddenly expresses an interest in Hampstead, the agent will simply introduce them to the local branch. In New York, brokers will travel all over the city with their client. And yet, despite all this rushing around, the New York market appears to run at a slower pace.
“One of the things I was struck by was that properties appeared to be on the market for much longer than in London, and it wasn’t seen as a particular reflection of either the quality of the property or function of price,” Cuthill says. “I think our market has a faster turnover.”
In New York, like London, prime locations are constantly evolving. According to Stribling, the far west side of Manhattan in the 50s (as in street numbers) is going to become a more established neighbourhood; she also points to an unlikely renaissance in the Upper East Side in the 70s and 80s, between York Avenue and the East River, as a result of the Second Avenue Subway expansion – due to be completed in 2016.
Kelly Kennedy Mack from The Corcoran Group, one of the city’s largest real estate brokerages, also mentions developments along the West Side highway – and points to the growing appeal of Battery Park City: “Where it used to attract people who worked primarily in the financial district, you now see families from all over the city heading down there,” she says. “With the continued redevelopment of Downtown, and particularly the World Trade Center, which is just a few steps from Battery Park City, the neighbourhood is presenting an incredible opportunity for price appreciation.”
Then, of course, there are those districts outside Manhattan, many of which are on the rise. Stribling herself (to all appearances, Upper East Side through-and-through) has recently moved into a loft conversion in Brooklyn, and she notes the development of distinct areas there – a characteristic that no doubt appeals to New York’s European buyers. “Brooklyn is similar to London or Paris in that it’s like a city of neighbourhoods – you have Park Slope, Brooklyn Heights, Cobble Hill, Williamsburg, Dumbo, and there are others too – each with their own personality, and yet you’re 10 or 15 minutes from Manhattan by subway.”
Since London has, in many ways, followed New York’s lead on the property front, I ask Cuthill what he has taken with him from the experience.
“Where we are perhaps stronger is in our marketing collateral, they are very complimentary about our beautiful brochures, which you tend not to see in New York,” he says. “The clearest thing I came away with was the extra time that they had available for their client base, be they buyers or sellers, and I think that is something we want to look at very carefully.”
Laura Battle is deputy editor of House & Home. She was a guest of Savills
London v New York costs of buying and selling
● Typically, the US model tends to favour buyers, with the seller facing the brunt of commission rates and taxes. In the UK the roles are reversed, with the buyer being liable to pay the lion’s share.
● The brokerage fee in the US is paid for by the seller. This can vary and, to a minor degree, prices are negotiable, but a typical commission rate is 6 per cent, with lower rates as you get above $10m and $20m.
● Estate Agent fees in the UK are paid for by the seller. This is lower than the US brokerage fee, usually 2 to 4 per cent of what’s paid for the property.
● In the US, Real Estate Transfer Tax varies depending on the state. In New York, transfer tax for the seller is always marked at 1.825 per cent, with the buyer paying 1 per cent on any property over $1m.
● In the UK, buyers are required to pay stamp duty which is currently 5 per cent on anything over £1m.
● Maintenance costs are common in cooperative apartment buildings in New York. These apply to buyers and usually come in at around 1 to 3 per cent of the listed price. This money is to put into a building’s own coffers for repairs.
● In the UK similar charges are often referred to as a “sinking fund”. These are becoming more and more frequent in London and typically amount to the buyer paying between £1,000 - £2,000 per year.