Luxury Real Estate : Immune To The Crisis ?
For many years luxury real estate world-wide has had a fantastic time with soaring prices and strong demand, be that from the shores of Dubai till European top destination, the US and The Far East.
Last year the global economies and markets collapsed and with it the real estate sector, in fact it was the overheated and over mortgaged US housing market that started it all. It would therefore seem only natural if luxury real estate plunged even deeper than ordinary real estate as times got tough but some seem to argue that luxury real estate is still doing well despite global crisis, credit crunch and financial scams.
This post takes the temperature on the luxury real estate market and how it is faring globally.
Shannon Molloy of Brisbane Times, Australia has an article about the dried up luxury real estate market and says:
Brisbane’s prestige property market will ‘languish’ this year as former corporate high-flyers rein in their spending, according to experts.
The top end of local real estate has enjoyed soaring prices and strong demand for several years, but RP Data researcher Cameron Kusher believes the good times are over.
Holiday homes, executive apartments, luxury property and tourism-driven investments could soon flood the market as the global financial crisis and economic uncertainty force owners to sell, Mr Kusher said.
And demand for million dollar homes looks certain to dry up thanks to factors such as poor company profits, lower than expected bonuses and losses in the stock market, he said.
“As a result of these changes in the top end, there will be a lot more forced sales… the affluent-type markets are likely to languish,” Mr Kusher said.
The article goes on to quote local experts for saying that long-term the market shall recover its value but short term remains grim:
Mr Greensill said demand for luxury homes had been in “almost free-fall” for months, but he did not believe there would be a long-term drop in values.
“Now is not a good time to sell a prestige home, so meeting the market requires a significant drop in price… but I think values will hold steady in the long run,” he said.
Jens Fischer of Pravda, Russia is one of the optimists and he argues that the European luxury real estate market has remained stable and not lost its value and appeal :
Many people think that if there is a crisis, crisis is everywhere. However, there are several sunny islands in the storming ocean, that keep prospering and attracting survivors. Name of one of them is Luxury Real Estate. The American real estate crisis has reached Europe – a fact that cannot be denied on the one hand but that has to be seen in different ways. Whilst prices in many regions and countries in Western Europe for standard houses have dropped up to twenty-five percent in 2008, which applies to almost all countries in Western Europe, the luxury market remains relatively stable. No substantial consolidation can be seen here, nor do experts expect a consolidation period to come during the next months.
The European luxury property market mainly refers to properties in traditional, posh, sought-after and highly reputable prime locations throughout Europe. Prices ranging from 1 million Euros up to more than 125 million Euros are being paid to some of the most exclusive freehold houses and mansions currently on the market in France and Spain and 750k and more for exclusive condos. Such properties usually qualify as luxury consumer goods pretty similar to sports cars, yachts and jewellery, and therefore are less influenced and affected by the general market downfall. Buying these properties is of a rather more emotional than of a reasonable nature and as a result is subject to differing behavior.
Professional real estate blogger and writer, Mark Knowles, disagrees with Mr Fischer in his comments to the latter’s positive views on luxury real estate and has the following to say to him:
Much as I hate to rain on anyone’s parade (not true), I feel I must break some bad news to you Mr Fischer - London luxury propertyprices fell 20% last year and are continuing to decline rapidly. I personally can introduce you to a Russian aluminum magnate who will sell you a villa in Italy, just over the border from France’s Cote D’Azur, that was bought last year for E 3.5 million that he would cheerfully take E1.5 million for. Roman Abramovich will sell you his yacht Pelorus for any sensible offer, and the previously mentioned aluminum magnate has already taken his boat out of the water and fired all the staff.
UBS Bank of Switzerand’s shares fell again todayafter the SonntagsZeitung reported they had made $7.2 billion in losses in Q4, bringing their total losses for the year up to almost $20 billion; the biggest Swiss corporate loss on record. No comment from the bank apparently.
Hardly seems worth discussing Marbella, but there are now a few “interesting,” property scams coming to light in the Spanish markets. A British politician is calling for an equiry into Ocean View Properties, a British property company that transferred £100 million to a Spanish developer which then evaporated (the money not the developer). The deal was apparently brokered and arranged by convicted fraudster Sean Woodhall, who conveniently disappeared in a light aircraft crash in Brazil last May. No bodies were recovered, but the Spanish developer claims to have paid back the money. There have been a lot of these recently - last month aloneFortuna Estates were busted for land fraud and Aifos, a Marbella-based developer was forced into recievership by one of their creditors. The owner and Managing Director of Aifos were both arrested for fraud some time back, but the failure of yet another developer Tremon apparently prompted the proceedings. Unravelling the mess of the Spanish property markets is going to take years.
Deidre Woollard of Luxist.com explains how the once untouchable and in-demand London and Manhattan luxury real estate markets have also suffered lately :
A recent article predicted continued gloom for the California real estate market this year but two other expensive markets are also in peril. The high-end market in Manhattan, once believed to be impervious to economic doom, spent the last quarter of 2008 catching up to the rest of the world. Properties that once would have been snapped up in days for a price close to list have now sat on the market for months and faced deep price cuts. A report from Prudential Douglas Elliman reveals that the median sales price of a luxury apartment (defined as the top 10 percent of the market) fell nearly four percent to $4.02 million in the fourth quarter of 2008 compared to last year. The top of the market is likely to continue to weaken as the fallout from failed banks and Wall Street firms continues to be felt. Our Sunday real estate round-up continues to show buying from financial fat cats but many are trying to sell their apartments for readily available wealth. StreetEasy.com says that almost 42 percent of the 259 Manhattan homes currently listed for $10 million or more came on the market since September. What affects Manhattan also affects the Hamptons with vacation and second homes searching for buyers that may be less ready to invest in something for pure pleasure.
It’s not much better across the pond. Bloomberg reports that luxury home values in London’s nine most expensive neighborhoods fell almost 17 percent last year. Like New York City, London is a big financial center and the loss of jobs in banking, finance, insurance and related industries is having a big impact on the market. The real estate brokers at Knight Frank report that the number of houses and apartments sold for at least 1 million pounds last year fell 49 percent from 2007’s record number. Overall it is predicted that London luxury housing values could fall by 30 percent by the time the real estate slump hits its inevitable bottom.
Yusuf Abdullah of Media Monitors Network has this interesting report into the much talked about Dubai real estate scene of which quite a lot can be categorized under the luxury umbrella :
The property bubble in Dubai has burst as credit has become scarce and international investors have scrambled to dump their assets to minimize losses. That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing. The rulers of Dubai had speculated that the price of oil would perhaps continue its upward surge–it had reached $147/barrel before its precipitous fall to $40/barrel or less in recent days. With Dubai’s reserves at a paltry 4 billion barrels compared to Abu Dhabi’s 92 billion, Dubai is more vulnerable to such price fluctuations.
Banks have tightened lending or frozen it altogether. Amlak Finance PJSC, one of the biggest mortgage lenders in the UAE, announced on November 19 that it had suspended new home loans. London-based Lloyds TSB Group Plc stopped offering mortgages for apartments in Dubai on November 11 and reduced the amount it will lend for villas from 80 percent to 50 percent of the price. This has naturally had a negative effect on property values. For instance, in November, the cost of a seven-bedroom villa on Palm Jumeirah dropped to 19 million dirhams ($5.2 million), still an exorbitant price, down from 30 million dirhams in September, according to the Dubai unit of German real estate company Engel & Voelkers AG.
Simon Packard of Bloomberg confirms that the London luxury real estate market is not in a good condition:
Luxury home values in central London fell in 2008 by the most in more than three decades as the worst banking crisis since World War I decimated demand from the city’s financial professionals.
The average value of a house or apartment in London’s nine most expensive neighborhoods fell almost 17 percent last year, according to Knight Frank LLP, which tracks prices dating back to 1976. Values declined 2.2 percent in December, the ninth consecutive monthly drop in an index that mostly covers homes costing at least 1 million pounds ($1.5 million).
Demand for residential property in the U.K. capital has waned amid a worldwide credit crisis that the research firm Oxford Economics estimates could cost London 60,000 jobs in banking, finance and insurance by the end of 2010.
“The market’s fortunes will be driven by economic conditions — especially those in the City,” said Liam Bailey, Knight Frank’s head of residential research, referring to London’s main financial district.
Worst hit so far have been homes worth up to 2.5 million pounds, a segment of the market where values fell 22 percent last year. Homes in that tier are favored by financial professionals who have been hit with job losses and “fears of further job cuts in 2009,” Bailey said.
The flip side of this negative status quo and short term outlook for the luxury real estate market is of course that it offers a tremendous buying opportunity for the cash rich and affluent investor so if you are looking for your dream luxury holiday or retirement castle and you match this profile of sitting on a mountain of cash, now is not a bad time to go shopping !
