Real deal about NY real estate

Source : Sunday Times – 1 Nov 2009

Lately, I’ve been getting e-mail from readers in Singapore about buying real estate in New York City, where I’m currently stationed. The general tenor of the e-mail goes like this: Wah piang eh! With HDB flats now going for $600,000, like that might as well buy an apartment in New York and rent out.

With American real estate facing its biggest slump in ages, it does sound like a good idea. I did a quick search on some listings websites and found that for S$600,000 (around US$429,000), you could get a studio apartment in trendy Chelsea in Manhattan, a one-bedroom condo in a building with a doorman and gym in Boerum Hill in Brooklyn and even an entire house in Queens.

Okay, so none of them is anywhere near a hawker centre with acceptable prata, but they’re decent deals when you consider that New York City is still the world’s financial and cultural capital (at the moment anyway), and should attract tenants fairly easily. Besides, they’re all freehold, as opposed to a 99-year lease flat.

But don’t start tallying up what you have in that Planta margarine tin under your bed just yet, because buying property in New York is not that simple.

First, if you don’t have $600,000 in cold, hard cash, you might as well just slide that Planta tin back under the bed, because no American bank will give you a mortgage if you don’t have a significant credit history in the United States itself.

No matter how many years of financial good standing you’ve chalked up in Singapore, it’s simply, as my old Basic Military Training sergeant used to say, boh pakai.

But say the equine deities smiled on you last week at Kranji or you received a karmic transfer of fortune when you managed to jot down the numbers of that three-car pile-up you passed on the KJE. Your next step would be to decide: Should I buy a condo or a co-op?

In New York, apartments are either co-operatives or condominiums. (I’m going to rule out houses because you can’t get a decent one for S$600,00, except in the dodgiest neighbourhoods.) With co-ops, you’re basically buying shares in the corporation that owns the building proportionate to the space your apartment occupies. With condos, you buy the unit outright. It’s simpler, but that’s why they’re also usually much more expensive.

They also tend to be much smaller. Another problem is that 85 per cent of all apartments in the Big Apple are co-ops. (Surprisingly, condos are a relatively recent feature in New York’s real estate.)

So co-op bigger and cheaper, then buy co-op, lah, I hear some of you cry. There’s one problem, however, and that is, even if you can afford a co-op, and even if a US bank is willing to offer you a mortgage, your prospective neighbours may not allow you to buy.

Because all potential purchasers have to submit to an interview with the co-op’s board, comprising owners of other units in the building. With some buildings, it’s a mere formality, but often in the more desirable neighbourhoods, it can be an ordeal that is, perhaps, only marginally less invasive than a visit to the proctologist.

Not only do they want to give you the once over, but they also want to probe your financials and job history. If you buy a co-op, your neighbours will know more about you than your girlfriend does.

The reason for such scrutiny is the notion that you should have a say in who lives next to you. Some boards have turned people down on the basis of race and sexual orientation, although this is illegal.

Even celebrities have been rejected. Mariah Carey was denied because the board was afraid she would throw parties and invite (shudder) rappers, and, presumably, set off all the dogs in the building every time she sang in the shower.

Sean Lennon was rejected by the board of the co-op where his own mother, Yoko Ono, was living.

Being rich is also no guarantee of acceptance. Earlier this year, investment bankers had a tough time being approved because boards were sceptical that they could continue earning their salaries. The clincher for most would-be Singaporean investors, however, is that, in most co-ops, you’re not allowed to rent your apartment out.

So if you’re a foreigner wanting to invest in New York property, even with the soft market, you have to be cash-rich enough to buy a condo outright. That, I think, rules out most of us. But take heart: Your 600-grand HDB flat has many things going for it that even the ritziest Manhattan addresses don’t.

Like proximity to prata. (Sigh.)