Yay, us? The obscenely wealthy increasingly turn to Boston for investment condos

Mansion Global reports:

Boston is undergoing its biggest residential boom since the 1920s, drawing the attention of wealthy house-hunters who would traditionally stick to New York, Miami, Los Angeles and San Francisco. ...

When completed in the summer of 2018, One Dalton will be New England’s tallest and most expensive residential building on display, with 165 condos priced between $2 million and $35 million.

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    World Class, baby

    Well, at least it will help us become a world class city. ;-)

    For the benefit of those who didn't look at the article, the title is "Why Boston Is Becoming a World-Class Real Estate Market"

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    Boston proper is becoming

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    Boston proper is becoming increasingly expensive to build in and live in, the alternative areas to build in are South End as your seeing now with the new ink building, widget circle off 93 south in Dorchester is another large piece of parcel of land for more skyscrapers, and Easties Marginal street section (old warehouse/ artsy area) could be potentially be developed with more much needed high rise condo buildings.

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    Cause and effect

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    This article makes the same claim that a lot of people do when discussing high rents, etc--that it's the construction of these buildings themselves that make Boston attractive for international buyers and cause high housing prices. I.e. let's stop building things and then all those foreign rich people might forget we exist.

    But while there may be some foreign buyers who would only buy a luxury unit in a new tower, there are plenty of well-heeled people (both local and international) who would buy a South End/Savin Hill/Eastie townhome, kick out the moderate income tenants, knock it through, and go crazy with granite countertops and edison lights.

    It's frustrating that not all of the units in these buildings go to people who would have lived here anyway, but that's how markets work, and according to this article 75% of buyers are still locals. That takes cost pressure off of all of us and helps make a tiny dent in our current housing shortage and cost crisis.

    And if you don't think people (international or otherwise) would ever pay $6,000 per month in rent or mortgage to live in a 2BD triple-decker with mediocre transit access, you should take a trip to the Bay Area.

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    Trip to the Bay Area

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    $6,000 per month in rent or mortgage to live in a 2BD triple-decker with mediocre transit access

    Mediocre transit access AND a free hobo encampment, complete with complimentary poop and needles on your $6,000 a month doorstep!

    I have some diehard I HEART SF!!!! friends, but is appallingly filthy. I call it San Franpisspoo because of the sheer quantity of human waste you encounter on the average street.

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    Tessa sounds like my kind of mayor

    Well, at least on one point:
    “Today in London hundreds of thousands of people are stuck in temporary accommodation, on social housing waiting lists, or years of saving short of buying their first home. At the same time the global super-rich buy London homes like they are gold bars, as assets to appreciate rather than homes in which to live … Absentee owners should live in the house they own or sell up – or face uncapped charges until they do. No dodges or clever schemes to get round that.”

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    all over

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    This unfortunately is happening all over the world. Anecdotal, of course, but I was in Taiwan in 2014 at a friend's place in Taoyuan (city right outside of Taipei), and on a Saturday night more than half of most high-rises were pitch black, largely thanks to the wealthy absentee mainlanders who are simply using overseas real estate as a place to hide their money. It is forcing young professionals and young families further and further away from city centers. Just another ripple effect of the concentration of wealth at the top.

    An empty apartment will appreciate at a higher rate than foreign government bonds, so why sully up your property with pesky people who might put a few hundred dollars of wear and tear on your investment?

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    Tulips anyone?

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    These things usually don't turn out so well - and all of this is fueled by runaway central banks giving free money to the rich (hard for the average person to get a mortgage and near impossible for everyone else - even before accounting for $100k in education debt - but if you don't need the money - there are people throughout the financial system giving it away virtually for free).

    Keep building - at some point these things won't be such hot investments. Anecdotal to be sure - but as a financial advisor I can tell you that virtually everyone I know thinks buying and renting real estate is a can't lose proposition (something we have a LONG talk about if it happens to be a client). That's the first sign of trouble. Think condos and the Japanese in the 80's, Dot com in the 90's, single family homes in the 2000's. This is just the latest incarnation of the markets remaining irrational longer than many can remain solvent.

    And it's usually the "smartest people in the room" left holding the bag - Japanese in the 80's, Long Term Capital in 1997 (which in my opinion is what started all of the last 20 years of problems with central banks) and hedge funds and lenders in the Financial Crisis/2000's. Next up - stupid rich and foreign investors that think luxo real estate is a pot of gold at the end of the rainbow. (had a talk with someone recently that paid $1000 per sf for an apartment and put in another $500 per sf fixing it up. If you read the papers - condos in that area sell for AT MOST $1500 per sf - but he's convinced they are worth $2000 per sf - and this was someone in the real estate finance biz!)

    Turtles live a long time. Slow and steady wins the race. Save and diversify for sure. But the best advice is from Warren Buffett - be greedy when others are fearful and fearful when others are greedy, because when the tide goes out - you get to see who's been swimming naked.

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    Maybe

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    On the other hand, look at the Miami condo situation. There was a huge bubble in condos maybe 8-10 years ago where there was were way to many developments and demand tanked along with the economy. However, in the ensuing years, investing in the US (even in a city soon to be underwater!) was seen to be a much better bet than leaving your money in Brazil, Venezuela, Argentina, etc... and these condos all turned out to be a great purchase after all.

    Boston is more stable than Miami. As long as the US is a relatively bright spot in a global economy which is either static (Europe) or excessively dynamic (Latin America, Africa), sinking a nice chunk of money into a real estate holding here is going to continue to make a lot of sense for a lot of people around the world.

    The Chinese elites are moving this way as the kids they raised in Vancouver are now heading for college in the Northeast. This will also continue to keep prices high for the near future.

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    Placing limits and quotas on

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    Placing limits and quotas on ownership from people without permanent residency would help that.

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    Not sure that would be legal

    HOWEVER, taxing the everloving fuck out of unocuppied real estate would go a long way toward raising money to plug the holes in the system.

    Don't pay MA income tax? Don't have a tenant paying MA income tax in-state? Fuck you - massive tax surcharge for you!

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    There are other places that

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    There are other places that already place ownership limits and quotas for non residents.

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    Rebate

    We already have an owner-occupied rebate (aka residential exemption). Qualification is determined based on a single date, however, January 1st. All absentee owners would need to do is have a new years' party here and they're set.

    The income tax angle seems fraught to me. Part-time residents are already liable for MA income tax proportionate to their residence. Meanwhile, some people simply make too little, considering all exemptions, to be liable for MA income tax. So this could become an additional tax not on wealthy, absentee owners but on landlords of college students and the impoverished.

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    The residential exemption

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    The residential exemption doesn't work that way: the Jan 1 date impacts the "owner of record" but for owner occupancy the property has to be your primary residence. There is a lot of gray area to the definition of primary residence (best example of that is Dick Cheney claiming to be a resident of Wyoming all the while being the CEO of Halliburton in Texas, totally evading a very straightforward clause in the 12th Amendment which should have gotten Gore elected president). But it's not as simple as being there for 1 day a year.

    On the other hand, the residential exemption is only $1,900. For a $2 million condo with a $22,000 tax bill, that's the equivalent of a week's rent.

    The state really needs to pass legislation that would authorize different residential tax rates for owner-occupied and non-owner housing. That would be the best way to increase the home ownership rate, by making property more valuable to people who could actually live there than to investors.

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    So all the RE in Beacon Hill selling at $1500 a sq will be empty

    There are a number of small developments going into Beacon Hill that are being marketed at prices around $1500 to $2000 a square foot. One of the NIMBY complaints is that this will add to traffic and parking problems. But what you and the article are suggesting is that the these concerns are totally unwarranted as no one will actually be living in these new places to cause these problems.

    Have to remember that the next time I go to a development impact meeting.

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    I don't know how empty they will be

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    I'm just saying that today's $2000 might still be $2000 per sf 10 years from now - or a money loser after accounting for inflation. Trees don't grow to the sky and we seem to have a lot of trees people are saying are 80 feet tall when it's well known those trees typically top out at 60 feet.

    As someone above noted - might be better than locking your money into a lot of the world's hellholes - but people and economies are dynamic. Today's hellhole is tomorrow's investment darling.

    Real estate is effectively a bond. Bonds and real estate have gone nowhere but up for 30+ years. But with interest rates at zero - and growing evidence that lowering them does little/nothing to boost economic fundamentals - it's hard to make much of an argument for either going forward - but especially a leveraged investment like real estate. Leverage is like a drug on the way up - and withdrawal on the way down.

    (full disclosure - I own my condo and I'm not selling - but it's my home - not an investment. Been there over 20 years and plan to be there another 20 - God willing).

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    The only realistic way to

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    The only realistic way to prevent that is with new buying limits, which other places have.

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    Kids these days...

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    It was amusing to read the truth: that empty-nesters from the suburbs will be shelling out many millions to live alongside rich college students. I know firsthand what that is like. Those adults can expect their new urban lifestyle to be far from a "luxury" experience.

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    The real reason

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    ...has nothing to do with our perceived world classness, and everything to do with luxury condos being a money laundering instrument for foreign oligarchs, coupled with the fact that the IRS has finally decided to track the straw purchases of luxury condos which typically remain vacant...but only in NYC and Miami-Dade (so far). This has the effect of pushing the money out of those two markets and into less monitored markets like Boston.

    http://www.zerohedge.com/news/2016-01-13/end-luxury-housing-boom-us-trea...

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    And despite the broadening of

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    And despite the broadening of the tax base thanks to people which cost Boston virtually nothing in public services the city will still be crying poor and demanding higher taxes.

    Just where the heck is all the money going?

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