The New York property market has shown phenomenal growth over the last three years, with prices almost back up to the highs of 2007. However, Chicago has just really started its price growth and I believe it’s a market to pay particular attention to for US-focused investors seeking value.
New York has long been an investment safe haven. Inventory is scarce with levels at a seven-year low, and with little supply coming over the next few years, I fully expect prices to keep strengthening. Vacancy levels through the Manhattan residential sector runs at less than 1 per cent, which underpins the investment opportunity for people looking to have an asset in one of the strongest property markets on the planet.
It is important that there is strong tenant demand to ensure an investment is income-generating — Manhattan certainly gives us this.
It is also important to look at affordability, by which I mean the tenant market needs to be able to afford the high rental prices some markets demand. Manhattan workers boast the highest average wages in the whole of the US which makes the high rental prices affordable.
The income levels of the domestic market is also important when it comes to selling properties; investors need to make sure they invest into liquid markets, those with strong domestic demand and not rely on selling the property to another investor. Again, the Manhattan workforce are well-positioned not only to pay rentals the market demands but save enough for a deposit to afford buying property.
With Manhattan prices increasing rapidly and very low levels of inventory, investors and tenants alike are now starting to look at other locations within NYC with more affordable prices and lower entry levels. Locations such as Brooklyn, New Jersey and Queens are starting to show strong growth as the Manhattan ‘ripple effect’ gathers speed.
New Jersey apartment prices have increased 4.1 per cent year-on-year to July with Brooklyn prices up 24 per cent through the same period and Queens by 8.1 per cent. This is a trend we will continue to see as investors and homeowners alike look for more value within a global property hotspot.
The short commuter times into Wall Street and mid-town from these locations is a key driver for growth as people can work in the city and pay considerably less in monthly rent.
Chicago in my eyes is where Manhattan was three years ago and still 30 per cent lower than the peaks of 2007. Manhattan prices are back to 2007 levels and I expect Chicago to be in that same position three years from now.
Chicago is the third largest economy in the US and a business hub of the Midwest with 29 Fortune 500 companies listed there. After a few slow years, the Chicago property market is really taking shape and is now showing signs of growth, with some very strong statistics to back up why I believe it will continue.
Whereas the average apartment in Manhattan is over $1 million, the entry level in Chicago is much lower and offers higher rental yields. A two-bedroom apartment in a new building in the CBD of Chicago can be purchased for $350,000 and offers a gross yield of almost 8 per cent, different from NYC’s 4 per cent.
Property prices in Chicago have jumped 14 per cent year-on-year to October and the rental market has also increased 5.3 per cent with a modest vacancy rate of less than 4 per cent. Chicago’s current construction levels are 63 per cent below the long term average and if inventory is gradually placed into the market, I fully believe the mid-term picture for property investing is strong.
Chicago also has a very strong tourism market and is the third most visited city by tourists in the US. With a strong economy and unemployment levels significantly lower than the national average, the outlook is strong.
Throughout the US, lending to foreign investors is a process within itself, with LTV (loan-to-value) levels of up to 65 per cent for foreign investors at favourable interest rates.
But the process can be taxing. However, if you’re investing into markets such as New York, Boston and Chicago, the upside far outweighs the time invested communicating with banks on the mortgage process.
— The writer is the head of IP Global Middle East.