The Russia-Ukraine conflict has drawn attention to the how international investors can move markets within the United States, in this case areas of new development like Billionaire’s Row in New York City and Sunny Isles Beach, Florida.
Billionaire’s Row is the strip of new construction, ultra-tall condos on 57th Street (432 Park, One57, 220 Central Park South, etc.) in New York City which has been driven by foreign investment and capital flight. Many ultra-high-net-worth individuals from unstable and conflict-ridden countries have purchased in these buildings sight-unseen as a way to export wealth to the United States, where is it less easily seized. Many of these units are sporadically occupied, or not occupied at all, thus functioning as a real estate-based safe deposit box for parking money.
Similarly, Sunny Isles Beach, Florida is the home of the highest concentration of new construction towers in the country, including Turnberry, Porsche Design, Armani Casa, Bentley Tower, St. Regis, Muse, and more. Though delivery of some of these condos is not until 2026, they already have a high percentage of reservations and sold units as the general Miami market services international clients similarly to Billionaire’s Row. It is estimated that the native Russian population in Sunny Isles is anywhere from 20-60%.
Although both areas have felt an uptick in listed inventory and price corrections since the invasion of Ukraine began, there are certainly no oligarchic fire sales going on. The threat of financial sanctions may actually be frightening non-Russian owners more than the targeted list of individuals that they are meant to restrict. This is because those on the target sanction list long ago moved their assets into blind trusts and/or their identities are shrouded in multiple layers of LLCs. In addition, real estate is much more difficult to seize than a yacht or a jet, thus reinforcing its value in times of distress.
The National Association of Realtors recently released a statement saying, “Any decline in international real estate transactions will have little direct impact on the (overall) U.S. housing market. Russian foreign buyers account for less than 1% of foreign buyer purchases, and overall, foreign buyers account for about 2% of existing-home sales, according to NAR’s 2021 International Transactions in U.S. Residential Real Estate Report. Moreover, the decline in foreign demand will ease supply constraints for domestic buyers.”
Those who do in fact need to sell because of pending sanctions, are expected to do so off-market via personal and Realtor® relationships. These individuals are not looking to draw added attention to themselves or their assets. This is common generally in the ultra-luxury $20 million+ market, whereby maintaining privacy is critical to the sales process.
Surprising to many is the fact that the median purchase price among Russian buyers in 2021 was $325,000, just slightly higher than the median purchase price among all U.S. foreign buyers of $303,200. However, the average purchase price among Russian buyers was $652,915, compared to $480,695 among all foreign buyers, suggesting there were more high-end Russian buyers bringing investment to the US last year.
Though not the immediate market mover it was once projected to be, the most probable effects of the Russia-Ukraine conflict are likely to be an increase in building material costs and a smaller-than-forecasted increase in mortgage rates. Elevated crude oil prices and general uncertainty in the markets will continue to fuel inflation. Inflation slows consumer demand and could potentially lead to a recession. That said, supply levels are still at an all-time low and construction completions have not accelerated sufficiently to close the home shortage gap, so the housing market has continued to be a preferred investment outlet because demand far outstrips overall supply.
This economic tug of war between uncertainty, security, inflation, and interest rates may lead to even further inventory shortages and increases in home prices and energy costs, thus setting up a very challenging spring housing market. Though home choices are sparse now, rates are still low and a bird in the hand will lend a feeling of partial security for buyers coming into added turbulence.
Erin Sykes’ perseverance and ability to anticipate trends are what have driven her success. She strives to help clients reach their unique goals with discreet, individualized attention and action-orientation. Specializing in helping high net worth clients year-round in Palm Beach, The Hamptons, and New York City, she utilizes her combined background in finance and construction to take an analytical and qualitative approach to amplifying clients’ return on investment. With a background in commercial and luxury residential construction at her family’s 120+ year-old firm and certification as a LEED AP – New Construction, she understands how to optimize new development and intricate renovation using sustainable materials and methodology. As Chief Economist for Nest Seekers International, Erin is responsible for developing and translating real estate trend data into consumer and industry insights. She reports on monthly housing starts, new developments, rate changes and general industry trends for all major news outlets. She is often interviewed by Fox Business News, CNBC, TODAY, CNN, NBC Nightly News, The Real Deal, Bloomberg, Mansion Global, Forbes, Bloomberg, TechCrunch, Inc., and Mashable. She holds a MBA from Pepperdine University and a Bachelor in Finance and International Business from Villanova University. Erin resides in Florida and New York City.