A recent study by Wealth-X found New York City is home to the largest number of the world's wealthiest people, making it the wealthiest city for real estate. Over the past few decades, New York has grown into one of the most important business and financial hubs in the world, so it comes at no surprise it would be home for many of the world's wealthiest people as well. So how does this label and what's associated with it play out for the everyday investor?
The wealthy aren't fleeing, they're buying
New York City actually comes in fourth for the most expensive real estate in the United States, based on price per square foot. But the three other more expensive cities, San Francisco, Boston, and Honolulu, are not identified as hotspots for the ultra-wealthy.
After coronavirus-related closures and work-from-home orders resulted in thousands of offices and businesses closing their doors or allowing people to work from home, thousands of residents fled the city in search of housing outside of the city center. This pushed real estate and rents down in many boroughs and put tremendous pressure on everyday investors.
But the wealthiest individuals seem to be doing the opposite. Instead of consolidating holdings in an uncertain pandemic market, many are doubling down and purchasing additional homes or real estate, according to a recent report by Wealth-X. At a time the New York City real estate market is in a downward spiral, a penthouse in Central Park South sold for $99.9 million in July 2020.
How it impacts investors
The Wealth-X study focused on individuals who have a net worth of $5 million or more. Since this super-wealthy class represents less than 5% of the U.S. population, most investors in the New York City market don't fall into this category. Their purchasing habits and behaviors, however, do have a small impact on everyday investors, both in good and bad ways.
The mega-wealthy's purchasing behaviors could drive real estate prices up in the area, but likely just for the markets they're targeting, which are often in extremely high-priced neighborhoods anyway. However, if they move outside of those top-priced markets, buying existing property as an investment, it could impact the availability of investment deals as well as the price for real estate.
A high concentration of the super-wealthy means there's a lot of money to go around in the city of New York. This can help fuel recovery for the city, support the return of higher rent prices, and possibly raise real estate values over time. But those who own are the ones who will benefit the greatest.
In general, as a real estate investor in New York City, you'll still need to know your target market, how to best source your deals, and how to maximize your returns, just like you always have done.