Land ownership is one of the most ancient proofs of wealth.
However owning contemporary luxury real estate is not only an attribute of good living, but also a great investment tool and market indicator, which hints at global property trends and reveals economic and political outlooks. The UHNWIs (Ultra High Net Worth Individuals) wouldn’t spend dozens of millions of US dollars for property they don’t find promising, would they?
Last year the top segment of growing luxury property markets was dominated by cities in China, New Zealand, Canada and Australia, while oil-dependent markets such as Moscow and Lagos were down at the bottom, according to Knight Frank’s fresh Prime International Residential Index (PIRI). The index ranks luxury property prices in 100 key locations worldwide.
In 2016, the value of urban luxury property increased on average by 2.4% year-on-year, while beach or coastal property slipped marginally by 0.5%. Average prices on the world’s prime residential market rose 1.4% as compared to a 1.8% growth in 2015.
Knight Frank’s experts also made predictions for incoming trends that the global luxury property market is set to see in 2017. In terms of price growth, the expected champions are:
One of the most expensive cities in the world, Shanghai topped the prime property value rating in 2016 and is expected to hold on to leadership in 2017 with an 8.0% price increase. Last year, prices for investors looking to purchase prime properties in Shanghai soared 27.4% as a result of the deficit in the supply of high-end property.
In 2016, some highly priced residential projects had to postpone their launches for 2017 due to the government’s moves to toughen regulation and so hinder the process of issuing pre-sale certificates. Therefore, the supply of new build high-end apartments was quite limited in November-December 2016: 79,200 m2 which came from new phases of current construction projects, says a report from Savills.
In the fourth quarter of 2016, high-end apartment transactions saw a 46.0% year-on-year plunge from the previous quarter, totalling 176,500 m2, while prices for new luxury property continued their increase: indices rose 3.1% to an average of 100,100 RMB per m2 — a new record price for the high-end Shanghai market.
In 2017, the value of luxury real estate in the main Australian business centre is expected to increase by 5.0%. Last year, Sydney posted a 9.3% price growth in high-end property and was ranked 11th in Knight Frank’s PIRI rating.
While many prime global property markets slowed in 2016, prices in Sydney continued rising thanks to a development boom, albeit at a much slower rate than before. According to a report by an Australian real estate website, Domain, native Australian prime property buyers purchased seven of the top 10 most expensive houses advertised in Sydney, while the remaining three were sold to overseas buyers.
Sydney’s booming real estate market is likely to have reached its peak, which will soften price growth in 2017, according to market experts’ estimates, cited by MaisonGlobal.
In 2017, the Sydney government and banking sector are planning to introduce new regulations, tightening lending rules for foreign investors in particular, which could slow down price growth further, says QBE. Some states, such as New South Wales, have already obliged foreign buyers to pay a special stamp duty and higher land tax.
The sovereign city-state reaffirms its status of being a global playground for the rich and where the wealthy look to acquire property. Experts forecast prices for purchasing luxury real estate in Monaco to soar 5.0% this year. In 2016, the value of the local luxury houses rose 1.02% on the previous year, sending Monaco into fifth position in the PIRI rating.
Monaco is exceptionally attractive for wealthy individuals worldwide thanks to its key advantages, such as political and economic stability, active construction and modernisation to meet modern-day demands, in addition to its safe haven credentials. These factors, as well as the city holding one of the world’s most prestigious motor racing events ever known – the Monaco Grand Prix – will stimulate further growth in luxury real estate prices, according to the report from Savills.
UHNWIs are interested in wealth preservation, and Monaco’s low tax environment serves this goal well. The principality does not charge any income, wealth or capital gains taxes. Corporations are free from taxes, except for those which generate over 25.0% of turnover outside Monaco (they pay 33.3% tax).
Another luxury destination, Dubai, is expected to post a 3.0% growth in luxury property prices this year. In 2016, properties for sale in Dubai saw a 4.0% fall and occupied 87th position in the PIRI rating.
High-end residential property prices are likely to continue falling throughout the first months of 2017, before stabilising again at the end of summer or early autumn, according to market experts’ predictions, collected by MaisonGlobal.
The slowdown in Dubai’s luxury market is due to external factors: traditionally the majority of buyers in the city come from outside of the United Arab Emirates and, according to a report from the Dubai Land Department, around 75.0% of real estate investments in the first six months of 2016 were made by foreign buyers.
Dubai, with its comparatively low transaction costs and no property holding fees, stacks up favourably against other competing global cities as an investment location for UHNWIs and investors, according to the Savills report.
Dubai luxury property prices are 85.0% below high-end residential houses in Hong Kong, 75.0% lower than London and 60.0% below prime estate in New York.
One of the world’s leading tech cities and states, Singapore, is expected to see a 2.0% rise in luxury property prices, according to calculations from Knight Frank. Last year, Singapore was in 20th position, with a 3.4% price growth.
In 2011, when the local property market peaked, Singapore’s government imposed several cooling measures to fight the sharp price growth. These included implementing the ABSD (Additional Buyer’s Stamp Duty), which adds an additional 15.0% fee to the purchase price for foreigners and local buyers who already possess more than one property in the country. However, citizens from the US, Switzerland and Lichtenstein are excluded from paying this fee due to tax treaties with Singapore.
Since then, Singapore’s prime and luxury residential prices have dropped 15-25%, which is why local properties now represent a good and competitive deal for ultra-high-net-worth investors. Singapore’s financial sector and business-focused culture contribute to its reputation of being a tech city with a well-developed health and wellness infrastructure, which is one key factors attracting high-end property investments.
by Agatha Sheremet – writer at Tranio.com, overseas property broker.