The New York real-estate industry is launching a frontal assault against a plan in Albany to impose a stiff annual tax on wealthy owners of part-time homes in New York City, warning it could topple an already weak housing market.
Some in the industry also maintain that the new tax would raise far less money than the government is projecting.
John Banks, president of the industry lobbying group the Real Estate Board of New York, said it was a “bad tax that has no analysis behind it” that could have ripple effects in the city’s economy.
He said that if wealthy foreigners stay away, it could cut into revenues of restaurants, retailers, and even taxis, and lower property-tax collections as apartment values fall.
Legislators who support the tax say it is appropriate to ask wealthy nonresidents to pay more at a time of growing income inequality, and when the city’s infrastructure is desperately in need of upgrades.
The proposal for a so-called pied-à-terre tax on homes worth $5 million or more on nonresidents has been lingering in Albany since 2014. The plan gained traction in the last few days as Gov. Andrew Cuomo and the legislative leaders, all Democrats for the first time in years, grasped for new revenue to close a large budget gap. At one point last week, Mr. Cuomo said it was the only tax proposal they were able to agree on.
“If they have the money to buy a $5 million apartment, which is not their prime residence, and it’s their little Manhattan getaway, they can afford the tax,” Mr. Cuomo said in recent radio interview.
The owner of a home valued at $41 million would owe an additional $1 million in taxes each year, an analysis of the proposed legislation shows.
The measure could be adopted in the next few weeks, as the state races to adopt a budget by the start of the new state fiscal year on April 1.
Manhattan real-estate sales fell 12% last year compared with 2017 levels, the worst sales pace since 2009. Developers and brokers warn that the new tax could drive down sales and prices further and halt construction projects.
Since the purchase of a second home depends on sentiment rather than need, the hefty tax would lead buyers to look elsewhere, brokers say. That could put architects and construction workers out of work.
The real-estate industry isn’t the only one urging caution. Citizens Budget Commission, a civic group, has urged the state to take more time to study potential impact of the measure before acting.
Vancouver and Paris have imposed extra taxes on apartments deemed to be vacant in an effort to free up apartments in a housing shortage. But New York’s effort is focused solely on the wealthy and imposes a vast new tax burden that in many cases will be five times to 10 times higher than property taxes paid by New Yorkers.
The nominal tax rates range from 0.5% for the portion of homes valued above $5 million up to 4% for the portion of a home above $25 million. But the proposal establishes a new higher method to value properties not imposed on owners of other condos and co-ops, making the new taxes far beyond what would otherwise be charged.
A 50-foot wide mansion on East 71 Street near Central Park that last sold in 1989 is now facing a $347,000 annual tax bill. But the city values the mansion, owned by a non-city resident, at nearly $56 million, and it would face an additional $1.6 million in taxes each year under the bill.
Or take the 20th-floor penthouse at 15 Central Park West purchased for $88 million in 2012 by the daughter of a Russian billionaire. Since New York law bars assessors from looking at actual sale values, the tax bill on the penthouse is about $153,000. Under the proposal, she would owe nearly $2.9 million more each year, based on the $88 million value.
The potential revenue from the bill is in dispute. City Comptroller Scott Stringer, who supports the measure, said the tax could raise $650 million or more, based on a Senate bill introduced by Brad Hoylman, a Manhattan Democrat.
But the bill as written would force many New York residents to pay, too. The new tax would apply to any individual who bought a home through a corporation or a limited liability corporation.
Using city tax and property records, The Wall Street Journal estimated that there were about 14,400 co-ops, condos and houses worth $5 million or more, of which about a third were held in corporate names.
The comptroller’s office estimated that about 5,400 pied-à-terre owners would have to pay the tax. But that figure includes full-time New York residents who bought homes through an LLC. If those homeowners end up excluded from the new tax, the revenue would be likely be lower, according to the real-estate industry.
Asked if some New York residents would be hit by the tax, Mr. Hoylman said that the final legislation would give the city council or the city’s finance commissioner the ability to shape the final rules fairly.
He said that an owner of a $6 million home would pay a modest premium of $5,000, less than monthly maintenance on some condos. “These are extremely wealthy individuals; these are second and third homes,” he said. “So this is not about the ability to pay.”
Bruce Cohen, real-estate lawyer, said that if the new measure drives away wealthy buyers, New York won’t get all of the expected tax windfall. Gains from the tax would be offset by the loss of city and state transfer taxes, which typically total 2.825% of the sale price for properties sold for $1 million or more.
Pam Liebman, the president of the Corcoran Group, said that if the tax goes through, it could cut property-tax revenues. She said one buyer looking at a $30 million condo decided to hold off after learning of the legislation.
“If the real-estate market suffers, everybody will suffer,” she said. “The condos will become rentals, the construction trades will lose out. Nobody will build another building.”
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