The dollar has had a spectacular few months, rising with considerable strength against major currencies beyond even the most bullish analyst expectations.
This is proving to be a double-edged sword for Manhattan's ultra-luxury market as foreign investment starts to fall off in response to diminishing non-dollar purchasing power.
In Manhattan, real estate brokers have reported a slowdown in foreign buyers over the last couple of months as the dollar rose along with prime property prices.
For foreign property investors, the combination of the dollar's surge to strength and an inflating property market translates into around a 40% price hike in the last six months.
Increased dollar strength equals reduced purchasing power
Real estate professionals are beginning to doubt that the massive price tags of high-end property in New York are sustainable after seeing annual increases of almost 30% in recent years. The cooling demand from ultra-high net worth individuals is expected to herald a correction in US prime property markets.
Developers of new luxury condominiums have seen their stock remaining on the market for longer than in previous years with condos priced upwards of €8m lingering the longest on the market, according to sales data.
Around 40% of Manhattan's luxury condo buyers are from overseas. However, as the dollar continues to strengthen with no signs of correcting in the immediate future, many buyers are shifting strategies.
Manhattan's ultra-luxury market sees drop in foreign interest
Foreign buyers are now looking beyond Manhattan's expensive postcode, seeking out bargains in the Bronx, Queens and Downtown Brooklyn. This shift of focus is warmly welcomed by less glamorous New York neighbourhoods as foreign investment brings many benefits to local communities and generally leads to localised economic growth.
Manhattan developers now find themselves in the unfortunate position of having paid over the odds for land and construction costs only to find their developments overlooked by wealthy investors seeking better value for money.
Developers are also looking to shift strategies, building homes priced for the domestic market with significantly lower price tags in order to better guarantee sales.
Foreign investors in position to pick and choose
However, it is not considered likely that foreign buyers will leave Manhattan's luxury property market due to their reduced purchasing power. Political and economic uncertainty abounds all over the world and with an economic slowdown underway in Europe and elsewhere, Manhattan's prime property market remains a great safe-haven for foreign capital.
Reduced foreign demand is not the only factor behind top-end properties remaining on the market longer – there are now even more properties to choose from and so the sense of urgency in sourcing opportunities has relaxed somewhat.
Foreign buyers do not buy property for use as a principal residence meaning they are generally in the position of being able to pick and choose at their leisure. As new supply is added to Manhattan's property market in the next few years, it is anticipated that prices will start to cool in line with demand, returning value to prime real estate.
- Thursday 13 November 2014