Globalization has been very, very good for Boston, especially if you are in the business of building penthouses in the clouds for the super-rich.
If you don’t believe me, just take a look at all the gleaming new towers taking shape on the Hub’s skyline, increasingly fueled by international investors snapping up multimillion-dollar condos.
But globalization can be a double-edged sword – what it giveth, it can taketh away.
There is a dangerous overconfidence right now in the real estate world in Boston and beyond, with a growing belief among many who should know better that the luxury condo market and the development boom it has spawned will just keep spiraling upwards, pausing maybe at most to take a breather. After all, that’s been the pattern since the early 2000s, with even the Great Recession failing to seriously derail Boston’s luxury condo market.
But amidst all the news coverage and market gossip about the latest record-breaking condo sale, little if any attention is being paid to the downside of Boston’s growing cohort of absentee luxury condo owners, who see their real estate holdings in the city as just another financial asset, ready to be liquidated if prices fall or the world economy tanks.
It’s a risk that’s hard to peg precisely. After all, developers aren’t exactly rushing to spill all the details on how many of their condo sales are to investors, while the sales themselves are often hidden behind trusts and other legal camouflage. But from the information that is publicly available, the amount of luxury real estate in Boston that is now owned by investors in China and other countries across the world is enough to worry about.
When the next downturn hits – and it will – all those luxury condo investors are likely to be the first to sell, dumping dozens if not hundreds of units into a struggling market.
Absentee Investors
Scott Van Voorhis
There is no official tally of the percentage of Boston’s new crop of uber-luxury condos that have been snapped up by foreign investors. However, a number bandied about for a few years now by brokers – and reported in at least one local paper – is that a quarter of the city’s newest towers have overseas owners. A 2013 Boston Globe story cited that figure while pointing to 45 Province, W Boston and Millennium Place as hot spots for global condo buyers.
With a real estate bubble in China in full growth mode back then, buyers found Boston prices refreshingly cheap.
Arguably, both the percentage of investor-owned condos and the number of towers they can be found in has only grown since then.
The new 60-story Millennium Tower, which just opened in Downtown Crossing, has worked hard to attract buyers from China and other Asian countries. The marketing website is translated into Chinese and the tower conspicuously lacks a 44th floor, which has connotations of bad luck in some Asian cultures.
The tower’s high-powered developer, Millennium Partners, has also taken its pitch directly to buyers in China and other Asian countries in a roadshow akin to a company seeking new investors, one downtown broker notes.
Exactly many how of the 442 units have been snapped up by investors is unclear, but of the deals that have closed, a high percentage have been cash sales. In fact, one condo has already hit the market as rental.
And Millennium just won a bid to build yet another tower – this one at the old Winthrop Square garage site in the Financial District – potentially opening up new opportunities for investors around the world.
The new Four Seasons tower now under construction in the Back Bay promises equally if not more lush prices and accommodations, and is also seen as a magnet for foreign buyers.
For that matter, just take a look at 22 Liberty, the new condo high-rise in the Seaport which boasted an average unit price of $2.9 million. No sooner than the tower opened than there were a flurry of multimillion-dollar resales, a sure-fire sign of investors at work.
Meanwhile, Boston’s attractiveness in the eyes of wealthy global condo investors and buyers has only grown over the past few years. Given a volatile stock market and shaky economic conditions in China, luxury condos in Boston are considered to be a safe bet right now.
The Hurun Report, which caters to China’s rich and those who follow them, has ranked Boston as No. 7 on the list of global cities for Chinese real estate investors, according to Boston magazine.
Gaging The Downside
So what’s to worry about? A lot, if you really think about it.
For starters, that 25 percent number – as in luxury condos owned by investors from China and elsewhere – may very well be low. The figure essentially comes from high-flying downtown real estate brokers, who pal around with downtown condo developers and track the latest sales.
It suspiciously sounds like a number that acknowledges what can’t be denied – lots of investors snapping up high-priced units – while keeping it low enough to avoid creating a stir.
The other line that’s used to assuage the skeptical is that the investor/buyers from China and around the world who are snapping up so many Boston condos have a long-term buy and hold outlook.
OK, maybe some do, and that’s admirable. But we have no idea how many other condos or other investments these buyers have sunk their money into. Or, for that matter, what kinds of financial pressures they may face if the economy were to tank and the real estate market were to soften.
Sure, saying you are long-term investor certainly sounds good – after all, who’s going to say “I’m a property shark” as they sign papers to buy a $5 million condo? – but it is essentially a meaningless platitude.
If the economy and real estate market starts to wobble, many of these self-avowed long-term investors are likely to get very short-term in a hurry about their fancy Boston condos, which, after all, are simply another asset.
Maybe an even bigger concern is that this flood of international buyers snapping up condos in Boston essentially ties the fate of city’s now sizzling luxury real estate market to little understood economic forces and events on the other side of the world.
That’s the downside of globalization.
After all, who the heck can say what is really going on right now with the Chinese economy, and whether what has been cast by Beijing as a slowdown in growth isn’t a full-out recession?
If China’s skid accelerates, maybe these investors opt to keep their money in Boston where it’s safe. Then again, maybe they sell in order to raise cash to pay off investments gone bad at home. The truth is, no one can really say.
But at the end of the day, whether these luxury condo investors are from China or Switzerland, their Boston holdings are just that – holdings, not homes.
And the growing number of investors buying up luxury condos in Boston creates a potential for volatility that could come back to bite us all when the next downturn hits.
