Nothing is certain but death of tax abatements. The 421-a tax abatement ended in 2016, but the benefits of the expired program continue for many luxury condo unit-owners. Now, as the 10- to 25-year abatements phase out, the owners of those apartments are seeing staggering increases in their property taxes – just as the once-robust market for luxury condos is slowing, the New York Times reports. Double ouch.
A 10-year sales analysis of 7,238 condo units with waning 421-a tax breaks showed that their sale prices grew by 12 percent in that time, compared to a substantially stronger 29 percent in the overall condo market, according to the listing website StreetEasy, which used city data collected by the New York University Furman Center. In 2009, the annual tax bill for a one-bedroom apartment in one of these abated buildings was $792; by 2019, the median annual tax bill for such a unit soared to $13,080.
While prices for these abated units ultimately went up over the past decade, the last five years tell a different story, with sales price actually falling an average of 3.6 percent, just as many 421-a abatements have phased out.
“Sellers were essentially overvaluing these units – until the abatement started to expire,” says Grant Long, StreetEasy’s senior economist. Early buyers may have overlooked inflated prices, because the abatement kept their monthly carrying costs relatively low. But many of these abatements are now expiring just as sales are slowing and prices are falling. The result is today's buyer's market.
The neighborhoods with the most condo units set to lose their 421-a benefits in the next two years are the Upper West Side with 1,217 units, Chelsea with 706, Midtown West with 484, Flatiron with 440, and Midtown East with 427.
Created in 1971 to spur development in neglected neighborhoods, the 421-a program allowed condo buildings to be exempted from millions of dollars in property taxes for 10 to 25 years, depending on location and other criteria. The program expired in 2016, but the tax breaks persist depending on when a building was built. Owners of 421-a apartments pay a fraction of the property’s full taxes during a period of exemption, with the tax burden rising steadily until it reaches the full assessed value. For many condo unit-owners, that day of reckoning is at hand.
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