Here’s another drag on the already-sluggish sales of high-end condo apartments: the looming death of a prized tax abatement. At a sampling of five buildings where the city’s 421-a tax abatement will end this year or next, owners are listing a greater share of apartments for resale compared with other large Manhattan condo towers, according to the listings website StreetEasy. Often, they’re not finding takers until the price drops close to – or below – what the seller paid years ago.
“People aren’t willing to pay the same amount for something that’s going to cost them more on a monthly basis,” says Grant Long, senior economist with the listings website. “Figuring out what the right price is, given the expiring abatements, is going to be a challenge over time.”
Thousands of Manhattan condos built before the 2008 downturn benefited from the now-defunct 421-a, in which developers received property-tax breaks and passed them along to buyers as a way to promote sales in their pricey buildings, Crain’s reports. Under the program, an apartment’s property-tax burden would be phased in over 10 or 15 years, with the first few years fully exempt. The abatement’s expiration means the unit is subject to the full tax bill.
In the pre-crash years, buyers paid top dollar for condos with low carrying costs, probably reasoning they’d recoup their investments by selling at a big profit before their abatements ended, Long says. That strategy doesn’t work in today’s saturated market.
“The difference between a building with a tax abatement and a building without is probably an additional $400,000 on the purchase price,” says Alon Chadad, broker and co-founder of Blu Real Estate, which is marketing listings at Upper West Side properties with expiring abatements. He cites the Avery, a tower at 100 Riverside Boulevard, where the tax breaks will end this year: “It’s one of those buildings where anybody who bought in ’08 or ’09 would be lucky to break even.”
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