High-end housing for the super rich will continue to prosper, the experts say
Despite recurrent series of financial crises, acquiring super-prime property will never be a bad option. On the contrary, the market for ultra high-end properties is booming as super-wealthy individuals seek to insulate themselves from the current economic problems by putting their money into top-end homes. Meanwhile, the rising number of multi-millionaires and billionaires in recent years has led to increased competition for a scarce number of prime properties in the world’s major international cities.
For example, in spite of the financial difficulties and sanctions, Russia has increased its share of billionaires in 2017. Obviously, these individuals will also be looking for high-end properties to invest. Inevitably, the phenomenon of billionaire-growth is putting upward pressure on the price of top-end homes, despite the fact that housing markets in many countries are suffering from stagnation. International property advisers claim that this strong demand from the ultra-wealthy has created a new global super class of real estate.
Overall, luxury homes typically bought by billionaires in Hong Kong, Shanghai, Singapore, Tokyo, London, Paris, New York, Sydney, Moscow, and Mumbai are significantly outperforming the rest of the property market. The price of super-prime properties in these cities soared by an average of 10%, while their value has increased by 65% in the past five years, despite the global financial turmoil. The rise is nearly double the 6% increase in prices for homes typically bought by senior executives in major cities during the same period.
The experts claim that this increase reflects the speed at which new billionaires have been created, particularly in the ‘new world’ and their proportionate investments in global real estate. The city of Hong Kong is in a league of its own in terms of prices, with super-luxury homes selling for an average of £6,700 per square foot, more than double the £3,090 per square foot commanded by homes in London, and 29% more expensive than Tokyo, which has the second highest prices. The high prices are being driven by “overwhelming demand.”
The extreme scarcity of prime houses is, perhaps, an exaggerated caricature of the fundamental problem affecting all world-class cities; there are simply just not enough of the most desirable properties to go round. This dynamic has helped drive up the price of top-end homes by 83%. But the same factors that limit supply and push up prices have a significant downside too. At an average of just over 5,000 square foot, the homes of the super-rich are smaller in Hong Kong than any of the other global cities looked at, with the exception of Moscow, where city centre apartments are usually complemented with 21,500 square foot country mansion for the weekend.
However, concerns that a bubble is building up in the Hong Kong market are unfounded. It is a common feature of world-class cities that they are ‘unaffordable’ by local standards. More important to billionaires is the rarity of a product and most of the cities are short of space so the prime property is the scarcest, and it always carries a rarity premium. Besides, there are also signs of a ‘wall of money’ waiting to get out of China, which should further boost demand in Hong Kong, London, and the USA.
But while the cost of luxury homes in Hong Kong has boomed during the past five years, Tokyo, the second most expensive of the global cities, has fared less well. Prices of top-end homes have increased by just 11% in the five years. The Japanese market has a curious dynamic in that it is the land and not the property that holds the value, with properties depreciating almost as soon as they are built. There is also less demand in the city from international billionaires. But precisely because of these factors Tokyo is an exception, not a rule to the generic high-end real estate marketing curve.
Unsurprisingly, the price growth of ultra-high-value homes during the past five years has been strongest in the emerging ‘new world’ economies, mirroring the creation of new billionaires during the same period. Singapore, which now has the highest concentration of millionaire households in the world, leads the field with the growth of 144%, followed by Mumbai at 138% and Moscow at 110%. Shanghai has joined the trend, with top end properties posting price growth of 32%. Underperformance at the very top end of the market is undoubtedly linked to China’s closed market, where billionaire demand is solely domestic, unlike the rest of our cities, which are also fuelled by international buyers.
The strong property price growth seen in new world cities in recent years has caused the old world centers such as London, Paris and New York, to begin to look like good value, while currency exchange ratio has also made investing in these cities more attractive. Although prime homes in these centers are unlikely to match the gains seen in new world ones, they do offer the relative price stability associated with more mature markets. The established western markets have seen steady growth but not the same volatility as cities in the new world, making them attractive ‘safe havens’ for billionaires’ wealth.
In fact, international buyers now buy around 40% of high-end properties in London. Paris is also beginning to rival the UK’s capital as a store for international wealth. And ultra high-end property will continue to represent a good investment going forward. It is likely that the world-class billionaire homes market will out-perform other markets for as long as the boom in global commodities and other markets continues, creating new billionaires. Continuing political upheaval, war and civil unrest in various other parts of the world, will ensure that there is continued demand from the international elite for safe havens in world-class cities.