If there’s one thing salespeople love, it’s a sense of urgency. Agents and brokers in New York got one courtesy of the new transfer and mansion tax increases that go into effect July 1st.
Noble Black, a top broker at Douglas Elliman, has noticed more high-end buyers pulling the trigger. It’s a frenzy to get deals closed.
It’s easy to see why. A few days could be the difference between a $60,000 or a $135,000 tax bill. For a $10 million transaction, the difference would be $100,000 compared to $325,000.
Though the motivation for the tax hike is clear — bringing in somewhere around $365 million annually for the state — the consequences are not.
While it may seem obvious that buyers will be the group stuck paying the tax bill, some experts say sellers and developers may end up shouldering the majority of the burden, especially as the market starts to slow down.
Manhattan sales are down about 25% over the past two years. Luxury home prices (the top 10% of the market) are down 15% over the same period. In a softening market, buyers have an inherent advantage. Sellers may find themselves forced to make up for the increased tax rates with concessions and reduced prices.
According to Grant Long, StreetEasy’s senior economist, “It’s likely that the entirety of the new tax will be borne by sellers.” The new taxes are even being reflected in the language of contracts. One New York attorney has written contracts that specify the seller will pay the mansion tax if the deal doesn’t close by the end of June.
Particularly for new developments, the goal for sellers is to see how much the sponsor will cover as a credit at close — the mansion tax is going to be a huge part of that going forward. But for now, with the way the market is looking, buyers are walking away.
But, as we learned in Jurassic Park, Life finds a way.
Housing markets and buyers tend to grow accustomed to transfer tax hikes fairly quickly. London is the case in point. After London instituted a similar tax increase, home values flatlined for a period of time before rebounding.
The same should hold true in New York. But it will take time.
As the tax hike makes higher-end properties less desirable, focus is likely to shift to other areas of the market. Indeed, developers are already seeing activity shifting toward more affordable properties that are subject to less tax.
A Refresher on the New Taxes
Because we all have the end of June circled on our calendars, here’s a quick reference of the salient points related to the tax increases:
Check out our blog here for a complete breakdown of the new taxes and their rates.
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