It’s A Small World After All
Worldwide wealth is up, and there is value to be found in many corners of the globe. Internationally, luxury real estate has never looked like this.
by Camilla McLaughlin
Recently, an island in Bora Bora came on the market for 5 million euros, substantially less than the owner would have had in mind two years ago. Within weeks, two separate buyers were winging their way to Polynesia to view the property.
This spring, the sale of a Hyde Park penthouse in London for $220 million made big news because the price reportedly established a new high for international real estate. Scarcely a month later, this benchmark was overturned with the sale of an apartment in Monte Carlo, one of the world’s most expensive property markets, for $312 million.
The hunt for trophy properties and exceptional deals worldwide is back on as affluent consumers flush with cash look for locations across the globe that match their lifestyle desires and, even more importantly, offer outstanding buying and investment opportunities. “People are seizing the moment because they haven’t seen properties of this magnitude or these prices for awhile,” especially in the U.S., says Paul Boomsma, president of Luxury Portfolio at Leading Real Estate Companies of the World.
“Internationally, there is definitely more activity than there was a year ago because prices have dropped just like they have in the U.S. You are finding more high-end deals,” says Bob Hurwitz, owner of Hurwitz James Company, a Los Angeles real estate firm that lists and sells properties worldwide. Hurwitz is listing the Bora Bora island.
“The perception everywhere is that there are bargains all over the world due to the global recession,” says John Brian Losh, owner of Ewing and Clark Inc., in Seattle and publisher of LuxuryRealEstate.com.
“International family and investment trusts have set aside large amounts of money to buy trophy properties. They can buy at a discount now, but the increase when the market turns around will be dramatic,” Hurwitz explains. The people who’ve made the greatest amount of money in real estate have often done it through the purchase of luxury properties that at the time did not seem to be a particularly good buy. Hurwitz illustrates with the example of one owner who purchased a property for $7 million and then sold a year and half later for $13 million.
Globally, real estate has been on a path similar to the U.S. “Prices for residential real estate boomed and crashed and in some instances boomed again — all in the space of the last five years,” concludes the 2011 Global Residential Forecast published by Knight Frank, an international real estate firm based in London. On average, prices fell by approximately 17 percent across the globe in 2007 and 2008. And by the end of 2009, approximately 73 percent of the prime property locations surveyed by Knight Frank for the firm’s annual wealth report had experienced declines. Rather than stay at these levels, a number have recovered, although the degree and timing of the bounce varies drastically by county and location. Spain and Ireland, along with the U.S., have seen little or no price recovery.
In Spain, prime properties in desired luxury markets have fallen between 10 and 20 percent from peak, but motivated sellers are discounting prices by as much as 30 percent. Increasingly, savvy buyers are recognizing the opportunity. “It is an optimal time to buy for those with cash,” says Diana Morales, chairman of Diana Morales Properties on the Costa del Sol. “It has all added up to a soft landing for that portion of the market that stands out for its quality, revealing that the intrinsic demand for fine homes in good locations remains essentially as high as ever.”
London, which after Monaco is the most expensive international city, has had a remarkable resurgence in sales and prices, although in recent months inventories have begun to climb. Still, trophies such as the penthouse at One Hyde Park have cachet in the world of high-end real estate.
One region tracking the strongest appreciation is Asia. In 2009, Shanghai saw a 52-percent increase in home prices, Hong Kong a 40.7-percent increase and Singapore a 17-percent increase. “There are a few regions where interest in development is high and the real estate market is doing quite well,” says Lisa Kurrass, immediate past president of The International Real Estate Federation, FIABCI. “Certainly Southeast Asia and, in specific places like Bali, and Indonesian countries are proving to be hot spots for both high-end residential and tourism property development. Countries like Japan and China have become important locations for commercial development. But there is also dialogue beginning in places like Europe and in particular, France and Italy.”
As economies become more global, restrictions on the transfer of capital have declined and more countries are making it easier for foreign nationals to purchase. The growth of cross-border purchasing is considered by Knight Frank to be one of the main drivers for the globalization of luxury real estate. This trend is seen in London and the sunny regions in southern Europe; U.S. markets, including Florida, California and New York; and main Asian and South American second-home destinations. To illustrate this trend, Knight Frank notes that in the 12 months prior to June 2010, 50 percent of all the new-build apartments in central London were sold to foreign nationals.
Even more important is the amount of wealth worldwide that has been recouped. Fortunes are once again on the upswing with the number of millionaire households rising by about 14 percent in 2009 to 11.2 million households, close to levels at the end of 2007. Hurwitz and others say Russian buyers, who had been on a sabbatical from buying, are returning to the marketplace. Emerging as a buying force are Chinese buyers. “The Chinese are coming on big,” says Hurwitz, who has an agent fluent in Mandarin who is actively promoting high-end properties overseas to the wealthiest Chinese.
Still, globally, the most important word in any conversation about million-dollar properties is value. “We are seeing more people in the marketplace with cash, but they are still cautious and still looking for deals. They are making sure the value is there and the exit strategy is good,” comments Hurwitz.
Exchange rates and currency fluctuations also influence who looks when and in what location. When the dollar edged up, more Americans were looking at properties in Europe, according to Boomsma. An extremely favorable rate for euros, British pounds and Canadian dollars coupled with prices hovering at levels comparable to several years ago has made Florida, California and Arizona prime U.S. destinations for global buyers looking for value.
Historically, Florida has captured the largest number of foreign buyers, currently 23 percent, according to the most recent research from the National Association of Realtors. California was second, accounting for 13 percent. Texas and Arizona accounted for 11 and 7 percent, respectively.
“We’re seeing a little uptick from the previous year,” says Linda Lafferty, Coldwell Banker Residential Real Estate regional senior vice president. “We’ve seen buyers from Canada, U.K., France, some Germans, some eastern Europeans, just in Palm Beach.
We also seem to see more cash buyers,” she says, because they consider the U.S. a safe haven. “Price is definitely a factor and people know they can get a very nice home for a reasonable amount of money.” But, she cautions, it’s not a giveaway, especially for oceanfront. A number of international buyers also look for properties adaptable for family and friends and for extended stays. A particular draw, especially for South Americans, is the winter equestrian and polo season, which lasts from January through April.
In Arizona, Canadian buyers account for a larger sales volume in the Phoenix area than those from neighboring California, according to a report from John Burns Consulting.
Even in Lake Tahoe, which traditionally hasn’t been a Mecca for out-of-country buyers, there has been growing interest from international buyers, according to Shari Chase. Chase has extensive connections around the world and has had an office in London for decades. Anyone considering buying in another country, particularly Americans buying overseas, must do their homework. “A lot more research is required in today’s market. People need to deal with very knowledgeable real estate companies that have their finger on the pulse of the market, because it is such a different market than at any other time. It is a much more intelligent market.”
Plus, she says, “you need to know the pitfalls in each country. Europe has always had little different nuances.” For example, there is no MLS. Agencies are a patchwork and often only work in their limited area. “It is more about the company there rather than the agent,” according to Chase. When you walk into an agency, you are assigned an agent.
Top agents network with the top brokers in Europe. If they cannot directly connect a potential buyer with someone in a subject country, those with a broad network will have a personal and trusted relationship with an agent who does.
As part of our international market report, we asked experts from around the world for their take. Here are some snippets of what they had to offer.
Demand for high-end and luxury properties continues to grow on the back of an economic recovery, better business confidence and lower interest rates. As these factors improve, buyers’ appetite to invest large sums of money for leisure and living will continue to recover. Domestic buyers drive demand but expats from England and Europe look for properties on the Atlantic Seaboard.
—Herschel Jawitz, CEO, Jawitz Properties
Anyone who visits New Zealand finds it very difficult to leave, which is why this nation’s international star is on the rise. Rural properties are generally priced well below pre-2008 levels and offer wonderful opportunities for both an ideal refuge and income-producing property. Global investment companies from the U.S., Germany, and China have their eye on properties here.
—Graeme Bezett, Regional Manager, PGG Wrightson Real Estate Ltd MREINZ – New Zealand
The U.K. market has had a surprising bounce back in the last 18 months, although autumn brought softening prices. The effect of government-imposed austerity measures remains to be seen. The luxury sector in gold locations of Mayfair, Belgravia, Knightsbridge and Chelsea are still selling readily. Current buyers are likely to come from Commonwealth countries, India and the Middle East. Newcomers are Chinese buyers.
—Nick Churton, Managing Director, Mayfair International Realty
Salt Spring Island, British Columbia
Nestled up against the east side of Vancouver Island, Salt Spring and the Gulf Islands are one of the jewels of British Columbia. The market is on the cusp of change as more international buyers look for places to invest. Buyers are still in charge, but limited inventory means they have to come up a little bit in prices this year.
—Li Read, Sea to Sky Premier Properties
Cabo San Lucas
Along Mexico’s Gold Coast, the upscale market is faring better than nearly any other segment. With little or no debt, most owners are more resilient and less likely to be receptive to rock-bottom offers. When the rare “steal” comes on the market, it elicits multiple cash offers. A growing number of buyers hail from Mexico, while Americans are still the No. 1 international buyer. The strengthening of the loonie has brought more Canadians.
—Leticia Diaz Rivera, Coldwell Banker Riveras
St. John, U.S. Virgin Islands
The luxury market in St. John parallels the U.S. resort market in some ways. Activity this year has picked up and the outlook for the season is very positive. Rentals, a good indicator of future sales, have picked up dramatically. Prices and the lifestyle are somewhere between Vail and Breckenridge, with $25 million the most expensive. More than two-thirds of the island is a national park, truly making this a garden island.
—Christie O’Neil, Holiday Homes of St. John
The upscale market in general in 2010 still has demand. There are a number of wealthy people in the world that are looking for a warm, tax-neutral stable country to live in. These buyers are looking for prime property and they want value for their money. Sellers have become more realistic with their expectations concerning their property values. Buyers come from Europe and Canada in search of waterfront homes and condos.
—George Damianos, President, Damianos Sotheby’s International Realty
Buyers look for and find seven-figure acquisitions with opulent finishes, architectural integrity and luxury that are a lifestyle and smart investment. Pricing has been less volatile than many other parts of the world. The international market is still the leading driver of luxury real estate. What was once predominately all U.S. investors has become more global with large personal and corporate investment from Canada, Mexico, Venezuela, China, Spain, Israel, Dubai, and other international destinations.
—Scott Cutter, Owner / Broker, 2Costa Rica Real Estate
An exceptionally strong 2010 led to a recovery of values from the downturn, although escalating prices damped down demand going into the fall. Expectations are that 2011 will be more of a traditional market with a strong spring. Most demand is coming from in-country and Canadians often look outside their borders for second homes. High post-Olympic interest in British Columbia is laying the groundwork for future sales.
—Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada Elton Ash
Since January 2010, luxury inquiries and viewings have increased. Notable sales include villas of more than 2.5 million euros and an apartment at 4.2 million euros. High-end prices are down 20 to 25 percent. Even though the number of Spanish buyers has risen, Northern Europeans (Scandinavians, Irish, British, Germans and Dutch) are still a force. The types of properties most in demand at the moment are apartments up to 1 million euros and villas up to 1.7 million euros.
—Diana Morales, Diana Morales Properties Marbella, Spain