The sun. [volume] (New York [N.Y.]) 1833-1916, 1905-06-25
THE REAL ESTATE MARKET.
INTEREST RATES TO BE HIGHER
AFTER JULY I.

The Lending Institutions Have Decided
to Make Borrowers Pay the New Mort.
gage Transportation and Invest.
ment Expected to Decline for Time.
The question uppermost in the minds OF
brokers and operators just now is, What
influence will the new mortgage tax have on
realty trading? The tax goes into effect
on July 1. 1t Is a special tax of one-half
of 1 per cent, displacing, SO far as mort
cages are concerned, the general property
tax Of about N per cent. The opposition
to the new measure wholly disregards the
claims Of equity. The special tax is so
framed that it cannot be evaded. Under
the general property tax the great majority
OF the holders Of mortgages escaped taxa
ton on the part Of their wealth which was
invested in loans on real property. II all
mortgages had in the past contributed
their share Of the expenses Of conducting
the State and municipal governments,
the new tax would have been welcomed
as a relief by the interests which now de-
nounce it az hardship.
The point at issue has been whether
the new tax would cause a rise in the
rates of interest The supporters Of the
IIedSu1b CldlIIlcO LLdU LILO sclicI'Ai
property tax great deal Of money was
kept out Of the mortgage loan market
which would otherwise seek investment
there. The bulk of the capital which found
entry did 20 through evasion Of law. IL
was liable at any time to be discovered
and subjected to a tax which amounted to
confiscation OF 8712 per cent. Of the income
from a mortgage bearing interest at per
cent. The old law, it was agreed, kept
up interest rates partly by restricting the
amount of capital available for loans and
partly by imposing the risk OF heavy tax
on such capital as was loaned in expecta-
ton OF evadng the aT h tbat IL oud
invite fresh supplies of capital by substi,
tuting a reasonable for an excessive tax and
that, II 1t caused change in the rates OK
interest, the modification would be III favor
Of the borrower.
According to the opponents of the
measure, the old tax was so generally DIS
regarded that it had practically no in
f1uence on the loan market. They he.
lieved that, as the lower tax could not
be enacted, it would DE added to the rates
of interest
Which view will eventually prove to be
correct is still open to question. 1t IS
quite certain, however that the principal
lending institutions propose TO raise their
rates OF interest One-Idll VI l"E SS'II.
on July l. and that they have this week
on the old terms. The higher rates will
undoubtedly remain for some time. Capital
now invested in stocks and bonds cannot
he released at once without loss. Most
loan brokers believe that the tax W Ill be a
permanent addition to the former interest
charges.
That addition can hardly fail to have an
important effect on speculation and In
-N.,t., Ma 9th NJ
operating in real property which have
been introduced in recent years have tended
to initiate prices and reduce the margin
OF profits on individual transactions. In
the last five years several hundred realty
companies have been Incorporated, syndi-
Gates Of operators have been organized
without number, and the army OF individual
spectators has been extensively recruited.
Speculation il rea! estate is less OF an
incidental pursuit than IT formerly was.
1t has become distinct profession, with
a huge volume Of capital at its command
Improved business organization has facili-
tated and encouraged professional trading,
with the result that much OF the current
dealings is Of that order. Constant en-
ploynent Of capital is demanded, and
when investment buyers are scarce pro-
fessional operators are driven to bargain
ing and bartering among themselves.
In consequence Of the frequent turning
over of property, values are discounted
further into the future than has ever been
the case before. Operators have come to
look for quick sales and small individual
profits, while investors are obliged to
content themselves with q meager share
of the -unearned increment Formerly
tenement house was expected 70 yled
an income of to 10 per cent. on its entire
fee value. AT present the holder OF the fec
is satisfied IL his equity above the mort
gage shows a return Of that amount.
The higher interest charges will in all
probability tend TO reduce for time the
selling value Of property and restrict the
volume Of professional dealing. They will
no doubt impose some check on the ex-
traordinary activity in realty which has been
In progress during the first half Of the year.
However, their influence in this direction
is likely to he Of short duration. The city
is growing at a tremendous rate and new
housings must be provided at any cost
The mort gage tax will be before long trans
lated into higher rents. Because of the
rapid increase in population, chiefly due to
immigration, the tax will be felt for COM
paratively brief period by the professional
speculator and the landlord. On the other
hand, 1t will add permanent burden to
the cost Of living Of the tenant, whose
presence gives value to real property.