Boston regains favour as economy, employment and prices pick up
With Chinese and other buyers flocking to New York, Chicago and Los Angeles, this stately city is not to be overlooked, writes Peta Tomlinson
Something is stirring in Boston. Employment is up in the Massachusetts capital, with more than 42,000 new jobs added last year. House prices are on the move, appreciating 10.7 per cent over the past five years. With interest rates at historic lows, buyers are back in the market.
According to real estate data site Trulia, the median sales price for homes in Boston during the September-November, 2012, period was US$545,000, an increase of 5.5 per cent over the previous quarter. The average price per square foot jumped 10.5 per cent year-on-year, according to the data. Popular neighbourhoods in the city include South End, Back Bay, South Boston, Dorchester, Beacon Hill and Charlestown, Trulia reported.
IP Global's data is similarly upbeat. "The Boston market is rebounding quickly, with median price gains of 5.3 per cent last year. Prices are now only about 5.6 per cent below their 2005 peak, and the vacancy rate is below the national average at 3.6 per cent," the firm's fourth quarter Global Barometer found.
Explaining the city's "bright" outlook on the latest barometer, Tim Murphy, founder and CEO of IP Global, says Boston's property market has recovered much faster than most other cities in the United States, which continue to be plagued by high unemployment and foreclosures. "Boston benefits from a strong local economy supported by growth industries such as technology, education, healthcare and bio-tech," he says. "Buoyed by strong demand and low inventory levels, the city is likely to see continued price and rental growth over the long term."
It's not the only bright spot in the US right now, but an interesting one for investors to consider, Murphy says - even if it's somewhat of a curve ball, going by Trulia's tracking, in which Boston doesn't rate a mention in the top 20 US cities searched by overseas property investors (New York, Los Angeles and Chicago being the top three for China, according to Trulia).
"We are still bullish on New York and San Francisco, but wanted to give people an idea of some of the new places we had our eyes on for 2013," Murphy says. "While there are many parts of the US that merit attention as well, we think New York, San Francisco and Boston are the three that stand out most due to the overall health of the local economies, the structural lack of supply, and the historical demand for high-quality rental property in these markets."
A research report by Marcus & Millichap, a real estate investment services firm, suggests foreign investors are considering Boston. With vacancy rates trending below 4 per cent and rents "reaching uncharted territory", developers are scrambling to build multiple apartment projects across the city, the report found. But as the economy recovers, demand will continue to outstrip new supply, it predicts.
Marcus & Millichap's conclusion on Boston is that "institutional bidding activity will remain intense, especially for trophy assets within state Route 128 as foreign investors and reits [real estate investment trusts] seek long-term stability."
Another consideration is that the US is one of the easier markets for foreigners to buy into. Murphy says: "The US is a very fair and equitable market towards foreigners, with no ownership restrictions and no difference in tax treatment for non-citizens."
One developer confirms "amazing" inquiry from foreign investors, particular in Asia, for its project launched in mid-2012. Millennium Place, by Millennium Partners, is a 15-storey luxury residential tower on the Avery St-Washington St corner. Located next door to Boston's Ritz-Carlton hotel - also built by Millennium Partners - the building comprises 256 residences of one, two and three bedrooms, ranging in size from 750 to 2,400 sq ft, plus 14 penthouses. It is due for completion in the third quarter this year. Richard Baumert, partner at Millennium Partners, says equal interest has been received from investors in the mainland and Taiwan. Another report claims foreign investors are "snapping up" Boston's luxury condos, with one Chilean businessman reportedly paying US$9.2 million for a Back Bay penthouse. "There are a lot of buyers from Asia, the Middle East, South America and Europe, and they're paying cash," Michael Doherty, a partner at Citylife Real Estate, told the Boston Business Journal.
Luna Management Group, a real estate services firm catering to Asian investors, also lists Boston as one of the three key US cities for Chinese buyers to consider, given its stable economy, advanced technology, and "advantageous polices, regulation and incentives on taxes". Condominiums offer the "easiest and safest ownership structure" for foreign investors, according to Murphy. "They are typically newly built, professionally managed and offer the types of services and amenities that appeal to tenants. Of course there are a number of other types of properties available for purchase, such as townhomes, single-family, co-ops and the like, but these tend to be more cost- and labour-intensive to acquire and manage."
A high-quality property in a good location will always be easier to rent out, he says. "For something that will appreciate in value and won't be a money pit to maintain, I'd say be prepared to pay between US$500,000 - 600,000 for a one-bedroom apartment of 500 to 800 sq ft. Yields, like in any prime city, will gross about 4 to 6 per cent," Murphy says.
What you can buy for US$2 million to US$3 million: A new-build luxury penthouse in the Boston metro area, by a good developer - such as Millennium Place by Millennium Partners. For this price, the high-spec interiors and great amenities should make the property easy to rent out and, eventually, to sell.
What you can buy for US$100,000: an older-style, entry-level condo within walking distance of town, or a six-room, colonial-style freestanding home in a quiet street, built in 1906, and in need of work.