Luxury property market driven by scarcity and foreigners

Limited inventory, strong international buyer demand, and high net worth individual’s increased appreciation for world class lifestyle offerings have pushed prices for luxury homes toward historic highs, a new study shows.  The research from Christie’s International Real Estate compares the world’s top property markets including London, New York, Hong Kong, Paris, San Francisco, the Cote d’Azur, Toronto, Dallas, Los Angeles, and Miami, to produce the firm’s first global indicator for luxury residential real estate.

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The Index ranks markets across key metrics including record sales price, prices per square foot, percentage of non-local and international purchasers, and the number of luxury listings relative to population. It shows that globally, top tier property sales achieved record prices in several cities, remaining immune to many of the economic concerns that drive the general housing market and that HNWIs are often more inclined to invest in an important global market than in another city within their home country for second or additional homes. It found that prestige residential real estate values will more likely follow growth trends of non consumable luxury goods such as fine art more so than the growth trends of the general housing market. It also shows that cash transactions have dominated luxury property acquisitions across many cities but recent tax law changes in many of these markets are expected to negatively impact on market activity in 2013. ‘With financial markets providing a limited return on investment, high net worth individuals are recognising the intrinsic value of investing in non-consumable assets such as prestige real estate and fine art,’ said Bonnie Stone Sellers, chief executive officer of Christie’s International Real Estate. ‘Strong momentum in the luxury property market is also being driven by scarcity of quality inventory and demand from international buyers in many of the world’s top destinations,’ she added. London topped the index for the highest home sale price at $121 million followed by New York at $88 million the Côte d’Azur recorded the highest percentage of both secondary home buyers, 95%, and international and non-local buyers, 90%. ‘Ultra high net worth individuals with significant cash on hand, such as many of our Russian clients, are not afraid to invest in Côte d’Azur real estate despite recent market volatility,’ said Niki Van Eijk of Christie’s International Real Estate affiliate Michaël Zingraf Real Estate in Cannes. ‘These multi millionaires and billionaires are still keen to purchase property in the area for leisure purposes. They do not purchase these homes in order to flip their investments, rather they may purchase a spectacular home in Cannes or Cap Ferrat to enjoy the region’s wealth of available cultural and leisure pursuits,’ explained Van Eijk. Toronto’s real estate market, which has remained buoyant in recent years of global turmoil, recorded the lowest amount of days on the market for luxury listings at 46 days. However, the report says that this trend began to reverse in the second half of 2012 and the number of days on market is expected to lengthen in 2013 as a result of the implementation of new restrictions on mortgage financing intended to cool the housing market. Part of the success of the Miami market in 2012 was fuelled by South American buyers concerned with their own local economic conditions. ‘International buyers, in particular have been purchasing Miami property as a result of uncertainty in their currencies, which have often been devalued against the US dollar,’ said Ron Shuffield of Esslinger Wooten Maxwell Realtors, the Christie’s International Real Estate affiliate in that city.

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