One wonders about the state of the luxury real estate market internationally, as the world slogs through this period of economic turbulence. Certainly in Canada, luxury real estate investment has typically been seen as a safe respite for foreigners looking to park their money somewhere. Foreign ownership has always been a driver of the luxury market here.
Whether the impact from the decision by Canadian prime minister Justin Trudeau in May to ban foreigners from buying houses in Canada to stem rising house prices is debatable. That’s compared to ensuing bumps in interest rates, which is clearly impacting inventory issues. Certainly the luxury segment here has been a bulwark in the overall market through Spring 2022.
Luxury Portfolio International: 2022 market report
Luxury Portfolio International is a network of luxury residential real estate brokerages. And earlier this year they issued a study comprising data from individuals in the top 1% to 5% income bracket across 20 countries. It touched on a broad range of topics crucial to the global luxury residential real estate market.
The LPI report revealed a continuation of dominating home purchasing-related trends that began during Q3 2020 and continued throughout all of 2021. That showed that a demand for luxury real estate remains high. It showed that price increases expected to continue; supply remains lower than demand; time-on-the-market for luxury single-family homes often continues to “last just hours”. It also showed that sustainability is ‘Critically Important’ (66 percent) when considering future home purchases.
St. Thomas, U.S. Virgin Islands, $24 million
The study also shows an increase in the number of affluent sellers of residential real estate worldwide; that among luxury homes buyers, the majority (74 percent) shared strong feelings of a personal economic confidence and still 75 percent are significantly concerned that their discretionary spending power could be tested soon.
And while 2022 is expected to continue at a fast pace, there are signs that the luxury residential real estate market will be increasingly stabilizing, a crucial step to avoid complications for a long-term, super-heated market.
So who better to connect with to get a sense of what’s going on than Luxury Portfolio International president Mickey Alam Khan:
What has changed in the international luxury real estate market since the LPI study was released?
I think not much has changed since we put out that release. But I think at the luxury end of the market there’s still a lot of pressure on inventory. That’s a major issue, so the demand-to-supply ratio is still weighted heavily towards demand. I don’t see that abating anytime soon.
I do expect a slight increase in homes on the market for a slightly longer time before they sell. But it’s an all-cash market, affluent folks are completely flush. The stock market is holding up, so as long as the stock market holds up and the United states remains a haven for safe investments, the market will continue to see pressure.
Ton Son, Bangkok, Thailand, $39 million
A lot of Russian money now is moving to other possible markets, such as the UAE and Dubai. So if I were you I’d keep an eye on Dubai, and I would keep an eye on Miami. I would keep an eye on markets where they have demonstrated an openness to outside investments, such as Portugal, Malta, so that’s still going to put a lot of inflationary pressure on housing stock.
What are your thoughts on Trudeau’s decision to block foreigners from buying real estate in Canada?
It’s Arabs or Chinese or Russians, so it’s the European and Americans, and they are basically pricing out locals. You’re going to see more protectionist measures like that. It comes back to the stock market. As long as the stock market is happy (real estate) investors are happy. You’re going to continue to see the $1 million to $5 million market perform well, and the $5 million to $10 million market as well. The very, very high end, that’s a different story because there you require certain type of customer … those properties may linger on the market longer. But the [properties] between $1 million and $10 million, I see the same pressures you saw last year.
Paris, France, price upon request
Where is money from Russian oligarchs flowing to, in light of all the international sanctions coming out of the war in Ukraine?
You look at Malta, Cypress, Portugal. Portugal’s a case in point. You can get a Portuguese golden visa for 250,000 euro and you basically if approved have the same rights as the everyone else. So I mean not all Russians have sided with Putin. I look at Turkey now. I also look at Israel because a lot of them have dual citizenship as well, so a lot of them have moved there. I’d look at the UAE.
Mantea Casa Cabo, $12 million
With all the instability around the world, do higher net worth individuals still view real estate as a stable harbour to park their money?
I absolutely agree with you because looking at asset classes right now, if you’re looking at the safest investment … one is the stock market and the other is real estate. The ups and downs [in the stock market] are not that dramatic unless you have a major recession or depression. I don’t see that happening. I mean there are worries that you could have a recession in Q4 but I highly doubt it. You’ll have a slow down but not recession. Real estate has always been a safe haven.
I think people are still pretty confident. The difference between this wave of 2020-2022 versus 2008, 2009 and 2010 is most transactions this time are on a cash basis. [Buyers] are flush. So they’re not that leveraged.
The work-from-home reality
Also keep in mind that because of the pandemic people are used to working from home now. Obviously companies are expecting staff to come back to the office but most companies cannot insist on five days a week. You’re seeing schedules of two to three days a week, which means the home is really important. So they’ve got to make sure that they have those segregated areas too, to make sure that they have professional equipment, Wi-Fi and stuff like that, that’s really industrial grade.
So I think the second home is no longer a second home if it’s within a two-hour distance. I don’t go to second home anymore, I call it a cool private residence. That’s what’s happening. People are shuttling between their homes in the city and township, near the beaches. If you look at Boston, you have Cape Cod. Same thing with Los Angeles. You have the Palm Springs area. In the UK they’re going to the country home estate … in France too. So we’ve entered a new era where there will continue to be work from home flexibility.
Villa Jasmine, Saint-Barthelemy, $15,689,826
Luxury real estate: How are people’s attitudes towards environmental sustainability impacting luxury home sales?
The media basically brought this issue to the forefront and I’d give the media credit for that. Now when you look at homes I think all new builds they have to follow certain new codes around the world, especially in the western markets. Like with your energy consumption, user materials from flooring to the paints, are you harming environment? If you’re in California counties require that you use white on the roof to reflect the light, to keep the homes cooler, with a lower consumption of energy because you’re not using the air condition as much.
So it’s an absolute selling point now. I mean at a very high end what happens is that someone buys a trophy property … they’ll knock it down right and rebuild everything … they want to make sure that they have the latest technology.
Luxury real estate: More from the LPI study
According to an LPI study: 75 percent of those surveyed noted choosing their next home with sustainability in mind, with an unprecedented 90 percent noting “yes” as to factoring sustainability in relation to a Next Chapter in Life home search. According to the study, a “Next Chapter in Life” home search pertains to those moving to be closer to family, because of their children’s education, a career move, and other mitigating factors.
People interested in sustainability as a major factor of their home purchase are 71 percent more likely to view the purchase as a legacy home that will be passed on to their heirs.
Cape Town, South Africa, $11,532,977
Also, according to an LPI study: The percentage of individuals in the market to purchase residential real estate by the end of 2022 increased from 19 percent in 2021 to 39 percent in 2022 in Europe, and from 30 percent in 2021 to 37 percent in 2022 in Asia/Pacific.
Forty-six percent of those surveyed from the Middle East, specifically consumers from Saudi Arabia and the UAE have the greatest interest in acquiring residential real estate, as those individuals continue to diversify their holdings. North America shows modest growth from 21 percent in 2021 to 25 percent in 2022.
Top image: Lake Como, Italy, price available upon request; All images courtesy Luxury Portfolio International
Montecito, California, $18.5 million
Greenwich, Connecticut, $41.5 million