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Tuesday, March 27, 2007
We have seen a new condominium development with a tax abatement. What does that mean?
Newly developed and converted condominiums are the premium product in the today's real estate market, and have driven the price per square foot averages for NYC condos upward in recent years. One of the ways in which these properties compete in the market is by passing along real estate tax abatements to consumers. According to Michael Dym, a New York City based real estate Attorney, "The advantage of a tax abatement is simply that your real estate tax bill will be reduced each year by the amount of the abatement. This can often translate into savings in the tens of thousands of dollars. So condominium projects which offer these abatements, assuming all other things are equal, will have an edge." Looking down the road apiece, Mr. Dym points out that "On the other hand, when deciding on the purchase of a condominium unit with a substantial tax abatement you must also consider whether at the end of the abatement the home will still be in your budget, and what the impact on the value of the property without the abatement will be at the time you are most likely to sell".
Demand for newly developed homes in NYC remains high, even with increased inventory and the rapid pace of new development, which has been in part driven by tax abatement programs which have given developers incentives to to build. Dym continues, "There are several tax abatements programs benefiting new or rehabilitated residential construction in NYC. The most common are those tax abatements resulting from the Section 421A program". According to a recent article in The Real Deal...
"The 421-a program, named for part of a section in the state's Real Property Tax Law, is a tax exemption based on the difference between the taxable value of a particular lot before development and any value added by the completion of a qualifying project. The law, set up in 1971, offers tax abatements lasting from 10 to 25 years, including phase-out periods."
The future of these tax abatement programs is a hot topic in the NYC real estate industry. According to another Real Deal article, "the city may significantly alter the incentive, possibly ending what's not only become a welcome incentive for new construction but also a means to lure buyers to new luxury projects". At a recent forum on new development which the magazine sponsored, Corcoran's CEO, Pam Liebman asked a question from the audience, about the impact of the proposed changes, which clearly spurred the most lively discussion of the evening from an all star panel of experts. Whatever the future holds, there are properties on the market right now which may be significantly more attractive for you based on these incentives.
Michael Dym Esq. is a real estate attorney. His Web site has useful information on purchasing New York City properties.
