Thursday, June 28, 2012
Residential Realities June 2012 Print
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June 28, 2012--You Break It, You Own It: Pottery Barn Rule as tax policy... Tax Abatement is Dropped by the Legislature About a week ago, it looked like the beloved 17.5% tax abatement benefiting co-op and condo owners in New York City would live on. Although it costs a bunch of money in lost tax revenue ($430 Million to be exact), the tax abatement gave significant relief to the carrying costs of 365,000 apartment owners and helped residential sales recover from the collapse. Unfortunately, the Legislature did not extend the abatement program and life will get more costly for apartment owners, effective July 1st. Your Abatement is Not in the Mail As reported in Crain's yesterday, so certain was the extension of the abatement program, that the New York City Department of Finance sent out tax bills for the coming fiscal year reflecting the abatement. Now the Department of Finance will send out the Maxwell Smart "sorry about that chief" letter, removing the abatement and significantly increasing the real estate tax burden on thousands of apartment owners. Supposedly, Albany will convene a special session this summer to work something out. Albany, in the summer, rather than the Hamptons or Martha's Vineyard, I don't think so... An Unintended Test of the Market Folks in New York put up with a lot of indignities, the cost of living being at the top of the list. Increasing carrying costs by almost 20%, literally overnight, will no doubt be a shock to the system. Will this legislative failure put the brakes on Manhattan's robust co-op and condo market? We shall see... For more on the impact of increasing carry costs, see "A Big Piece of the Pie: New York City's Insatiable Appetite." June 20, 2012--It's All Good: Co-op and Condo Tax Breaks to Continue... Market Temperature Rises Not to be Douggie Downer, but it's starting to feel a little bubblelicious around here. Once again, contract signings in May were through the roof (almost 1300 according to Urbandigs), with low inventory, stratospheric rents and foreign interest in Manhatttan real estate causing deal activity to surge. Is Manhattan some kind of positive black swan? We shall see... Turning Up the Heat Adding to the combustability of things, is the decision in Albany to continue the 17.5% tax break awarded to co-
op and to condo owners. The tax break, at least in theory, is intended to equalize the taxation of home owners and apartment owners. As reported in Crain's yesterday, despite the Mayor's efforts to limit the tax break, the legislators are poised to extend the benefit on the same terms. The party continues. Had the tax abatement been significantly limited, the carrying costs of almost every co-op and condominum apartment would have increased dramatically, with all of the unintended consequences to follow, including a possible dampening of sales activity. According to the Crain's reporting, the tax break costs New York City over $462 million a year in lost revenue. As the real estate market throughout the country continues its journey on the road to nowhere, perhaps this reluctant investment in Manhattan real estate makes good economic sense...