Last spring, New York real estate broker James Keogh and his wife wanted to move closer to the ocean. The couple, bringing their four children and 13-year-old dog, sold their four-bedroom, 2,450 sq ft house in East Hampton, Long Island, for $1.6mn and traded up to a 4,500 sq ft home in nearby Amagansett for $2.2mn.
To make the trade, which closed in May 2021, Keogh turned to cryptocurrency, which he had begun trading about 18 months before. After paying capital gains tax, he used his ethereum profits for 50 per cent of the new house’s downpayment, amounting to hundreds of thousands of dollars.
“For me to come up with a downpayment while all my money is in my other house, I needed to go to [other] places,” he says. So he turned to his digital wallet.
And Keogh is not alone. Several brokerages the FT spoke to report an increase in buyers looking to cash in on their cryptocurrency gains.
“[Last year] we saw the emergence of [the] super-wealthy crypto buyer,” says Garrett Derderian, director of market intelligence at brokerage Serhant. He cites buildings such as 432 Park Avenue, on Manhattan’s so-called Billionaire’s Row, as an example of a building that has been popular with crypto buyers.
Shaun Osher, chief executive of brokerage Core, cites Rose Hill, a new development in the NoMad neighbourhood of Manhattan, as being popular with buyers who have made a packet on crypto investments, sometimes buying units above $20mn. “They want sexy, high ceilings, incredible views [and] great amenities,” he says. “Some of them were living in a studio apartment” two or three years ago and are now seeking apartments with a “wow factor”.
“They want something no one else can have. They want something big — they want a penthouse,” says broker Ryan Serhant, who claims to have been approached by about a dozen cryptocurrency investors who would not qualify for traditional loans.
Douglas Elliman broker Tal Alexander says he too has been contacted by buyers seeking to spend their cryptocurrency profits on homes in Miami. While most investors first convert their cryptocurrency to cash (a transaction subject to capital gains tax) and then pursue traditionally structured purchases, Miami — whose NBA team plays in an arena named after cryptocurrency exchange platform FTX — is home to luxury developments accepting cryptocurrency directly. A penthouse at Arte, a building in Surfside, sold its lower penthouse for $22.5mn in an all-cryptocurrency deal last May, and the developers say they will accept it for future projects.
Cryptocurrency holders, however, may be starting to question the viability of their portfolios — and the potential to convert them to hard assets: the price of bitcoin has fallen some 30 per cent in the past year, with ethereum also down.
Keogh might have sold his home at just the right time — and to a digital assets attorney no less.
Though cryptocurrency buyers may still be very small in number, it is a curious development for the luxury property market in the New York City area, the fortunes of which have transformed since the pandemic. Two years ago, the sector was in a slump. Newly developed apartments, often worth tens of millions of dollars, languished on the market, sometimes going unsold for years after completion.
But in recent months, as the city has been recovering from the blow dealt to it by the Covid-19 pandemic, demand has exploded — particularly for high-end homes in Manhattan and Brooklyn.
In January, 102 new contracts were signed for Manhattan’s luxury homes — those priced at $4mn or above — double the number in January 2020. According to a report by brokerage Douglas Elliman, the amount spent on the city’s luxury homes last year was the highest annual total for more than a decade — and almost double the spend in 2020.
Above $10mn, more homes sold last year than in 2019 and 2020 combined, according to research from Serhant. “I have never seen such a shortage of quality inventory in the prime markets,” says Serhant broker Chase Landow. Supply is so tight, he says, that his customers are compromising on amenities such as private outdoor space and doormen.
Nancy Wu, an economist at property portal StreetEasy, puts the rejuvenation of the luxury market down simply to “people’s [improving] financial situations during the pandemic”. Many wealthy New Yorkers have gotten wealthier in the past two years, due to higher savings and returns from growth stocks, and were primed to capitalise on a subdued market.
But this isn’t the case across the board, Wu says. “We’re seeing that prices at the bottom of the market are falling,” because it’s those homeowners who were “impacted the most severely by the pandemic financially.” They do not have digital wallets to fall back on.
Shivon Duncan’s parents, who emigrated from Grenada half a century ago, instilled in her the importance of home ownership, and it has been her dream to own a condo since she was a teenager. She wanted a home in a building with amenities but with prices soaring, “It’s like, what do you do?” she asks.
She managed to find exactly what she was looking for in the Brooklyn neighbourhood of Mill Basin. Duncan, who works in the city’s public hospital system, bought a one-bedroom condo that came with a garage and driveway for $280,000 in November. She now looks around and sees young people who need dual-income households to live comfortably — they cannot do so on their own. And she needed help, too.
Duncan applied for the New York City Department of Housing Preservation and Development’s HomeFirst Down Payment Assistance programme, which provides up to $100,000 towards the deposit or closing costs for qualified buyers. “Without that help, I don’t think it would have been possible,” she says.
New York City housing has a well-known affordability crisis, but the pandemic has put up more barriers to home ownership. “People who lost jobs had to move out of the city or foreclose on their homes,” says Wu. More supply in that tier of the market then leads to lower prices when there is not as much demand.
Queens has been hit particularly hard by this reality — in the 12 months to January, the borough’s median asking price fell 5.7 per cent to $584,000, the lowest since 2016, according to StreetEasy. Brooklyn asking prices stayed flat, while Manhattan’s rose.
Neighbourhood Housing Service of New York City, a non-profit providing lending services and home ownership education to people with low to moderate incomes, typically helps 100 to 150 people purchase a home annually, says chief executive Derrick Griggs. In 2021, that number dropped to fewer than 25 as clients lost jobs and took credit hits during the pandemic.
Pre-Covid, banks were accepting debt-to-income ratios of about 45 per cent when considering mortgages, says Dan Martin, chief executive of NYC Housing Partnership, another non-profit. Not wanting to take on more risk during the pandemic, banks lowered the acceptable ratio closer to 40 per cent, cutting out a lot of potential buyers.
In Queens, investors are scooping up homes in low- to moderate-income neighbourhoods, displacing communities by suggesting to homeowners that the only way forward financially is to sell, says Yoselin Genao-Estrella, executive director of Neighbourhood Housing Services in the borough.
Homeowners in the Queens neighbourhood Astoria have recently reported skyrocketing energy and utility bills to their state assembly member, Zohran K Mamdani, that are “forcing Astorians to question whether they can afford to stay in their homes and in our neighbourhood,” he says.
Working-class New Yorkers have been contending for decades with the market force of gentrification pushing them out of their homes. Holding on to them could get harder as these pandemic-related economic pressures persist.
Steff Chávez in an FT Chicago correspondent
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Source: Financial Times