THE NEW GLOBAL CURRENCY:
LUXURY REAL ESTATEFor the past several years, we have
experienced the rise of real estate as a new global luxury asset, a new
trend by investors across the globe seeking to invest in purchase properties
to create a “safe haven” for their money. But this trend is unlike what we
saw during the last real estate boom. This time around, luxury real estate
purchases are fi nanced primarily with cash with a long-term perspective in
mind. Known for their stability and appreciation patterns, primary real
estate markets in the U.S. have become increasingly popular among foreign
buyers.
As global wealth has expanded, worldwide interest in luxury
real estate— especially in coastal U.S. markets, including Manhattan, the
Hamptons, Boston, Washington D.C., and Miami—has grown alongside it, with
investors seeking long-term value and looking to housing markets that show
stability and potential for sustained growth.
The familiar 3L real
estate mantra—“location, location, location”—no longer sets the tone for the
market. After a turbulent decade of global economic growth, the idea of
aspirational property has spread beyond simple geography. The 3L mantra has
evolved into: “location, lifestyle, leverage.”
A sense of place and
safety is critical when making a purchase decision. In luxury real estate,
this emphasis on location has become a question of “core” versus “emerging”
markets. A core market is an area that is considered well established and
with proven stability, and is often populated with properties that offer
features and amenities above and beyond the norm. An emerging market is much
more volatile, subject to sharp declines and market swings. Opportunities in
core markets are severely limited, which continuously poses a challenge for
developers seeking to create new products.
“As global
wealth has expanded, worldwide interest in luxury real
estate has grown alongside it .”
Over the past decade, property amenities and
neighborhood features have become increasingly important in the purchase
decision. Consumers consider not only whether a property is a solid
long-term fi nancial investment, but also whether it will offer the right
mix of features to fi t their unique lifestyle.
Since the large majority of sales in this luxury tier are
from all-cash investors, access to credit for individual purchase has not
been a driving force of the luxury real estate market; however, still
relatively low interest rates and tight credit remain critical economic
factors, as interest rates are pushing many investors around the globe to
seek higher returns on their investments. Housing is an asset that can be
leveraged in terms of occupancy and enjoyment— aside from selling it down
the road. The New York region’s relative affordability compared to other
major world housing markets, such as London or Hong Kong, has been a
distinct incentive for buyers from emerging economies (such as the BRIC
countries) to invest, in addition to the existing demand from European
buyers.
The rise of new development activity across U.S. housing
markets shows that luxury real estate is the new global asset class. Among
the key drivers of the demand that initiated this phenomenon—relatively low
interest rates, increasing global wealth, tight credit—none is expected to
change signifi - cantly in the near future. Based on current conditions and
expectations, it seems the luxury real estate market is an asset class
that’s here to stay.
