By Lisa White, GBR Realty
The international luxury real estate market remains impervious to the economic trends and political shifts that usually control the housing market and is off to a phenomenal start in 2013. That is according to a report titled “Luxury Defined: An Insight into the Luxury Residential Property Market” from high-end real estate affiliate network Christie’s International Real Estate.
The report finds that the Top 10 property markets include London, New York, Hong Kong, Paris, San Francisco, France’s Cote D’ Azur, Toronto, Dallas, Los Angeles and Miami. Christie’s recently introduced the first global index of its kind in the luxury residential realm — the Christie’s International Real Estate Index — which ranks markets on price per square foot, number of luxury listings in comparison to the population, record sale prices and the percentage of international and non-local buyers.
Major Findings From the Index
- Of the markets studied, London was at the top of the index with a record sales price of more than $121 million for a residential property in 2012, followed by an $88 million sale in New York.
- As it relates to luxury properties, Hong Kong had the second highest average price per square foot.
- The study found France’s Cote d’Azur had the highest percentage of international and non-local buyers and the highest percentage for secondary and additional home buyers.
- Los Angeles was the city cited for the most luxury transactions that were paid in cash. The report indicated that it was almost at 100 percent.
- Toronto was found to have the lowest average number of days on market (46 days).
In the report, Christie’s indicates that “except where there is government intervention, luxury residential real estate values will likely follow luxury goods and not the general housing market, and are therefore poised to increase in many of the cities studied in 2013. This is particularly true as HNWIs (high net-worth individuals) turn their luxury investments toward non-consumables and experiential luxury products that have lasting value.”
Economic conditions in the foreign exchange markets have also impacted the luxury market and international real estate sales. The definitive trend over the past year indicates that a weakness in the U.S. dollar has led to facilitate sales to foreigners. Alternatively, strength in the dollar hurts international sales. This perspective shapes foreigners’ perspectives concerning various trends in the U.S. real estate markets.
According to National Association of REALTORS® Chief Economist Lawrence Yun, international buyers are heavily concentrated in four states: Florida, California, Texas and Arizona, accounting for 51 percent of international clients. This data is consistent with the Christie’s report on California and high net worth individuals looking for real estate in both Florida and California. Florida has been the fastest growing destination of choice.
A report by Candy & Candy, Savills and Deutsche Bank recently compiled a list of UHNWIs (ultra-high net worth individuals). The report shows that by 2017, this market will grow by 20 percent and their wealth by 30 percent. This news will bring great delight to many luxury developers, as this influx of capital will lead to future development in high-niche markets such as New York, Singapore and Hong Kong, respectively. In a recent article entitled, “Luxury Real Estate Developers Salivate as the Rich Get Richer,” author Kim Velsey reports that in 2012, these markets alone saw 300 real estate transactions totaling more than $15.4 million, which are expected to increase to 400 per year by 2017. “A trophy ‘safe haven’ property in a global city is typically at the top of the shopping list for wealthy individuals,” wrote Nick Candy, CEO of ultra-prime London developer Candy & Candy. “Their continuing appetite for such investments is expected to exert even greater influence over global property markets in the next few years.”
The report also highlights in detail the real costs to purchase, occupy and sell such properties in the world’s major financial hubs.
A recent report by Wealth-X (www.wealthx.com), a global ultra-high net worth prospecting, intelligence and wealth due diligence firm, estimated that 187,380 ultra-high net-worth international individuals, with assets worth more than $30 million, control a combined fortune of almost $26 trillion. The firm also confirms that while the majority of the wealth is being created in new growing economies, it is being invested in the “old world, much of it on tried and tested hard assets such as real estate.”
Yolande Barnes, Director of World Research, Savills, traces the trend back to 2008 following the collapse of Lehman Brothers. “We saw a flight from equities and conventional investments towards safe haven assets such as gold and very high quality real estate. In the right jurisdiction, property is seen as a legally safe investment that will still exist in the real world whatever happens in the financial markets.”
The Christie’s International Real Estate Index report also states that as of 2013 we have more billionaires than we had before the 2008 financial crisis. Due to many luxury buyers witnessing their local markets crash because of the ambiguity of the global economy, many feel much more secure investing in international cities as oppose to their own. In seven of the 10 cities studied, more than 30 percent of the luxury homebuyers were from other countries.
In closing, when doing business with HNWIs you should be aware that “High net-worth individuals find the world to be a small place, and geographical distances between cities are not relevant to purchasing patterns, which are more similar to each other than in the 10 cities surveyed than other cities within the same country.” Chrisite’s acknowledges that “globalization, economic development, wealth deposits and technology attract HNWIs to key global urban centers, where knowledge, capital and culture intersect.”