By: Stephanie Anton, President, Luxury Portfolio International
As the population of affluent consumers continues to grow around the world, so does their interest in real estate. In 2018, the global market for luxury real estate has seen vast differences from market to market, because after all, real estate — even at the high end — is most susceptible to local market forces and we expect that to continue in 2019.
In 2018, record-setting sales for luxury homes were achieved around the world. While prices may be stabilizing, we can still expect to see some records set in 2019. Recent data compiled by Knight Frank for ultra-luxury properties showed that for the last 12 months, transactions above $25 million each achieved a combined value of $6.6 billion. The world’s elite are highly engaged in seeking out top-tier properties.
Predictions for the overall housing market have been mostly flat for 2019, partly due to interest rate increases. While interest rates are less of a factor in the luxury market, where cash offers are more prevalent, rising rates still may influence sales in 2019. Luxury consumers are highly focused on making good investments and want to maximize the value of their properties. For these consumers, real estate is both an emotional and a business decision. As with property tax changes in the U.S, anything that impacts the overall affordability of a home affects the market.
Although luxury did slow in the second half of 2018, the overall fundamentals of real estate remain strong. The 2018 luxury market has been healthier than most realize. While median prices have been slowing, the top 5% of many major metro markets have been growing, with sales over $1 million up over 5% year over year, prices breaking records, in some cases by double digits, and in the majority of markets, inventory selling faster. This is happening simply because of the health of the affluent. The most recent Credit Suisse Global Wealth Report showed that aggregate global wealth grew by $14 trillion, up to $317 trillion over the 12 months through the end of October. The overall number of individuals whose wealth exceeds $50 million rose by 4 percent to 149,890 people. Luxury real estate is a vital part of the overall holdings of the world’s elite.
At Luxury Portfolio International, our 2018 Global Luxury Real Estate Report showed that interest in purchasing residential real estate remains high, with 38% of the global high-net-worth considering a purchase in the next three years. At the same time, interest in selling remains significantly lower, at 23%. This should bode well for luxury sellers globally, however, in individual markets, we are seeing pockets where things are slower and inventory is high. For example, New York City has seen luxury growth to be slow in Manhattan while areas such as the Astoria neighborhood in Queens has seen a rapid increase in sales. That trend should continue with the news that Amazon is planning a headquarters in Long Island City.
Around the world, investors in luxury real estate are taking a strategic approach. Real estate is viewed by high-net-worth individuals (HNWI) everywhere as a “wealth creator” and recognized globally as the preeminent status symbol of wealth and success. Buyers are very interested in urban areas and are expanding their interest beyond the typical marquee cities. This trend can be seen in China where purchases in smaller cities have grown dramatically over the past several years. When prices are high, such as they have been over the last several years, investors may seek opportunities in smaller cities where prices are lower.
Like we said, wealth doesn’t disappear, it just changes location. We expect to see significant cross-market shifting as more and more of the global elite invest “abroad” and across country lines. This is going to be particularly interesting as we watch wealth throughout Asia, in China and Hong Kong of course, but also in India, South Korea, Vietnam, and Indonesia, especially in the top 5 and top 1%. There is a tremendous opportunity for luxury real estate in South Asian markets. where development is on the rise.
While Brexit still has the potential to disrupt markets in Europe, it’s looking more likely that the change won’t be very dramatic. London is still a very desirable market for global luxury purchasers. Spain has seen a resurgence of interest in recent months and Germany continues to show strength.
While the 2019 luxury market will likely experience more of the softening we are seeing at the middle of the market, this is an opportunity for the investor and those willing to move when others aren’t.
Stephanie Anton, President of Luxury Portfolio International, has been with Leading Real Estate Companies of the World since 2005 and today oversees the strategic direction and day-to-day operations of Luxury Portfolio International, the company’s high-end marketing division. She frequently speaks to audiences around the world about the luxury industry at large, real estate marketing, and research and insights into the affluent consumer. She has been named to the Inman 101 list of innovative leaders driving industry change, the Swanepoel Power 200 list of most influential real estate professionals and Luxury Daily’s prestigious ranking of Luxury Women to Watch 2017, a select list of 25 accomplished executives set to make a difference in luxury. Luxury Portfolio International has a distinct point of view: as the luxury division of Leading Real Estate Companies of the World, they work with independently branded, local leaders around the world and distill the reporting and insights they hear from local leaders everywhere to paint a picture of the global luxury real estate market.
