Big Apple property is a good buy
I am in New York again, celebrating my granddaughter, Gabriela's, sixth birthday. It's a long trek for an ice-cream cake with sprinkle spread and gummy bears, but the joy of watching her in her party best, opening presents and giggling with her friends, is worth the hard and gruelling voyage.
While we are still reasonably fit and healthy, my wife and I have promised to visit our young grandchildren as often as possible. Our window of opportunity is narrow. Children grow so fast that I doubt whether in the years to come the presence of doting grandparents pinching their cheeks in front of friends will be appealing. Less attractive for us, as we mature, will be the rigours of winding queues at check-in, the indignity of rigid security searches, speedy walks from the aircraft's parking bay to Passport Control and the anxious wait at the luggage carousel.
Equally daunting are the prospects of increasing airfares and hotel bills. New York is a relatively inexpensive destination compared with other international cities like London, Sydney and Paris. Prices of clothing and transport are significantly cheaper than South Africa, while hotels are affordable. But, even so, when your stay exceeds six weeks a year, the expense begins to mount.
Generally my wife stays on longer than I, moving in with my daughter and her family rather than incurring additional expenditure. However, as the children grow bigger, sharing beds and bathrooms with gran is becoming less amusing, let alone the prospect of our son-in-law returning home after a hard day at the office - de rigueur in New York - to find his mother-in-law loading his dishwasher.
In recent years the strength of the rand - or dollar weakness - has worked in our favour. But the tide appears to be turning. The US economy is showing signs of picking up. Unemployment is falling, and home prices seem to have bottomed. On the other hand, ongoing labour unrest on our mines is threatening growth and damaging our international reputation. The downgrading of South Africa's credit rating has shaken confidence and triggered swift outflows, a trend that could pose a grave risk to the funding of major infrastructural projects that form the cornerstone of government's long-term development plans. While less than a fortnight ago we were celebrating the rewards of the inclusion of our bonds in an important global index, the rand's sudden plunge last week is a sombre reminder of the fickleness of financial markets and the unpredictability of its participants.
For my wife and I, and for other families wishing to stay in close touch with relatives in a foreign country, the deterioration of the rand could have a serious influence on future travel plans.
While property prices remained moderately subdued and finance costs ridiculously low, my best hedge against swelling hotel bills, I reckoned, would be to consider purchasing an apartment in New York. The viability of my decision would depend on comparing the expense of maintaining a home in a distant land with my annual cost of hotel accommodation.
It proved an interesting exercise and, to my astonishment, far from implausible, though I did encounter obstacles that are surmountable.
I discovered that if you buy a condominium, full title passes to you and you are free to sub-let or rent. In a co-op, you become a shareholder in a building that allows you occupation of a designated unit. The building's board of directors meticulously investigates each applicant before approving transfer while the conduct of each resident is governed by rules and regulations. Rentals and sub-lets are seldom permitted. Because of the more stringent requirements and stricter supervision, co-ops usually sell at a discount to condos.
In the US not only are mortgage rates preposterously low - a little above 3% per year - but interest payments and monthly maintenance fees are tax-deductible. The bad news is that without a Social Security number it is virtually impossible to obtain a mortgage. But it explains why owning a house in the US is a lot more affordable than in South Africa, where rates are three times higher and there are no tax concessions on housing costs.
Not all was lost, though. Seeking a solution from a banking friend in Switzerland I ascertained one could easily raise a five-year loan, for example, at 2.5% per annum, but only against the collateral of other investments, the interest of which, however, could be offset against income earned.
There are a lot of ifs and buts, but it could work. I could be better off buying a one-bedroom apartment in Manhattan than paying ever-increasing hotel bills. But for those who are interested, the window of opportunity is closing. Property values in New York are starting to creep up and mortgage rates won't remain low forever. And with my luck, no sooner do I buy, than my kids move upstate to Connecticut.