13 Gen Buying residential property in New York City
by Maurizio Gardenal partner, Studio legale internazionale Gardenal & Associati Milano, and Anthony Bruozas, Attorney at Law
Articolo pubblicato su “Diritto 24″, rubrica del Sole24Ore.com, 13 gennaio 2012
The purchasing of residential properties in the USA by foreigners , notably in New York City, has always accounted for a significant part of the whole turnover of this industry.
In recent years, more remarkably than in the past, Europeans have shown more interest in investing in this business due to the increasingly more beneficial exchange rate between the Euro and the Dollar.
Manhattan, in particular, keeps on appealing to a growing number of investors due to its limited supply along with more stable prices in spite of the financial crisis.
According to a recent survey, New York is the 15th most expensive city in the world, behind Moscow and London among others.
However , the execution of a property deal in New York requires that the investor be fully aware of the legal and fiscal framework in force in the USA which is essentially different from that of other countries which are not recipients of the same common law system.
Further, more specific issues have to be taken into account in light of the fact that the “Big Apple” is subjected to the laws in force in the New York State.
In New York City there are mainly two types of residential buildings: cooperative and condominium apartments which are submitted to two different sets of regulations.
Hereunder is a brief analysis of the two main categories.
THE COOPERATIVES ( Co-ops )
In New York City , eighty-five percent ( 85% ) of the apartments available for purchase are in cooperative buildings, while the remaining fifteen percent ( 15% ) are in condominiums.
This means that the prices, in general, are more attractive for cooperatives on the basis of the simple supply and demand logic, and there is more inventory to choose from if the buyer includes co-ops into the mix of properties.
Indeed, the nature of the sale agreement quite varies between co-ops and condos.
In a co-op, the buyer purchases the shares of a corporation which entitle him to a long- term proprietary lease. The corporation owns the building and each sale has to be approved by the board of directors which is elected by all the tenant owners of the co-op and has the role to verify and check any potential owner.
In many cases, the board of directors interviews the prospective owners since the former have the sole responsibility to protect the interests of their fellow tenant-owners by selecting well-qualified candidates.
Likewise, the sublease of a co-op has to be approved by the board of directors.
Generally speaking as regards Manhattan, the amount of money that may be financed is determined by each cooperative and the required down payment for prospective foreign investors may be up to 40% of the purchase price.
The corporation pays the total amount of the building’s mortgage along with the real estate taxes, employee salaries and the other expenses for the upkeep of the building.
The tenant-owner, in turn, pays a share of these expenses as determined by the number of shares which the tenant owns in the corporation.
Share amounts are dictated by apartment size and floor level.
Needless to say, it is highly crucial to check out in advance the rules governing the co-op to better plan the implementation of the sale transaction.
THE CONDOMINIUMS ( “Condos “ )
The purchase of an apartment in a “condo” is much more similar to a traditional transaction for purchase of property known in the civil law countries.
Indeed, the subject of the sale agreement is not a share participation but the real property itself.
Therefore, the buyer executes a deed and becomes the owner of the real estate. As a result of this, he will have to comply with the general condominium regulations. In any case, it is advisable for a prospective purchaser to review the condo’s rules before setting about the transaction process.
Anyway, condos seem to be the ideal choice for non-U.S. citizens or for those holding assets outside the United States because many co-ops are unlikely to approve a buyer whose funds are not in the U.S.
In a “condo” the owner has to pay the common charges on a monthly basis, which do not include real estate taxes or the mortgage costs since these are paid separately by each owner.
Most people see “condos” as attractive purchases also for financial- planning purposes.
Financing the purchase of a condominium apartment is far more flexible than in a cooperative and generally a buyer can finance up to 90% of the purchase price.
Instead, the financing in a “co-op” is managed by the corporation and must be implemented within the limits which are determined by the corporation itself.
On the other hand, as pointed out before, the prices for an apartment in a “condo” are typically higher than in a “co-op”.