As the summer ends and all groups get re-focused with regards to the New York City investment real estate sales market, we reflect on the constant activity throughout the summer months. As I mentioned in a previous blog we did not experience the typical summer slowdown. This recent resurgence of investment activity brings a slight resemblance to the pre-2008 times.
There are relatively few good properties on the market for sale (and even a less attractive pool of reasonably priced assets available), historically low interest rates and a staggering amount of liquid capital (both private and institutional) that needs to be put to use – still causing demand to far exceed supply. Now as the “busier” season starts we expect these trends and activity to multiply greatly.
If you have a property that you are considering selling within the next few years, now may be the time to seriously consider given the expected increase in capital gains tax which will likely occur next year in 2013. If the Bush tax cuts sunset at the end of the year as scheduled, capital gains will increase from 15 percent to 20 percent. In the National Health Care Program, an additional 3.8 percent capital gains tax is then included and would bring the potential increased rate to 23.8 percent. Should the president be reelected, he clearly stated his position to increase capital gains to 30 percent, which along with the Health Care rider would bump the total rate to nearly 34 percent in 2013. These scenarios could be quite substantial on your bottom-line so as of mid-September that gives any seller about three and a half months to market and close on your properties to lock-in current capital gains rates.
History has shown us that low interest rates benefit the seller much more so than a buyer, and are known to create asset bubbles over expected periods of time as reflected in the housing market back in 2008. Property values are increasing due to low interest rates and lack of other viable assets. Should local municipal taxes and charges continue to increase, with interest rates potentially increasing, capitalization rates will raise to match, causing the short term drop in current value. However, this is NYC and one of the most stable and desirable markets in the world so we expect values to rise over time.