Currently the image of the luxury real estate markets around the globe has been considerably varying. Sales volumes for luxury properties in markets like New York, Hong Kong, and London had been stabilizing in 2016, while emerging luxury markets continued to evolve. Moreover, markets that had experienced a lengthy period of decline are beginning to recover, for example Dublin and Detroit.
Christie's International Real Estate, the world's leading high-end residential real estate network, has publicized its report on 2016. The company has offices in London, New York, Hong Kong, Moscow, Los Angeles, and Palm Beach, and approximately 135 global affiliates with 32,000 real estate professionals in 45 countries. The report is scrutinizing 100 luxury real estate markets and provides "first-hand insights" into the shaping factors. According to Christie's International Real Estate, their annual Index compares key data and luxury house price metrics.
Key findings of the report include:
• While there was a slowdown in growth in some significant primary luxury markets throughout the world like New York and London, several less prominent markets which took some time to recover from the global recession perform well
• Several cities that have seen an explosion in affluent migration, new industry wealth creation, and an uptick in their general economy, particularly those that remain "affordable" compared to nearby prime markets, are experiencing incredible growth in both million-dollar-plus home sales and prices generally.
• 'Comeback' markets, once-stagnant luxury residential markets that are now witnessing positive turnaround, were another key element of the study. These markets are fuelled by positive economic growth – and often driven by the tech sector and similar burgeoning industries – with destinations such as Auckland, Dublin, Monterrey, and Atlanta, among others, experiencing high double-digit increases in sales.
• Exchange rates, coupled with other financial and political concerns are impacting the ebb-and-flow of the international luxury market, creating opportunities for some currency strong buyers and challenges for others.
• Despite attempts by governments to reshape top global markets and deter ultra prime property buyers in cities such as Hong Kong, many of the world's most affluent individuals continue to turn to property as a stable asset class.
• Increased attention on the transparency of prime property markets may dissuade some legitimate privacy-sensitive buyers, but will not in the long term deter buyers as they continue to appreciate the lifestyle draws, financial benefits, and collectible appeal of luxury home ownership
• Globally, well priced trophy homes continued to command strong prices in the world's top cities. Several markets surpassed all-time local record prices in 2015 and to date in 2016. However, the new luxury landscape has presented challenges at the highest levels as a widening disparity is growing between what buyers and sellers consider fair market value for prestige properties.
According to Dan Conn, the CEO of Christie's International Real Estate "the combination of high-volume and record-breaking prices were unsustainable at peak levels" while he added that "there needed to be a slowdown in these key markets and that is what began to occur in the middle of 2015 and into 2016. This is what we call a 'return to realism' year. Beyond that we observed 2015 and 2016 to date as the age of the underdog, with less prominent markets performing extremely well."
Other focal points as indicated by Christie's International are noted below:
• For the fourth year in a row, London commands the top position as the world's most luxurious property market. The top five is rounded off by Hong Kong, New York, Los Angeles, and Singapore.
• Auckland, New Zealand supplants Toronto, Canada as the world's "hottest" (based on increase in number of luxury home sales, absorption in the luxury market and decrease in average days on market) luxury real estate market, part of Luxury Defined's "Luxury Thermometer" scale. The top five include Auckland, Toronto, Victoria, Valencia and San Francisco, respectively.
• The report outlines enormous differences in the definition of luxury, with homes in Palm Springs, California still defining luxury as $1 million and higher, but areas such as Monaco now defining the start points of luxury at $10 million. Other notable cities re-defining luxury include Los Angeles, New York, and Hong Kong ($5 million); London ($7 million); and Sao Paulo ($1 million).
• Primary housing markets experienced an overall 8% increase in million-dollar-plus home sales as the global housing market returned to more traditional growth rates following several years of year-on-year increases at breakneck speed. Singapore, New York, London, and Hong Kong are experiencing slowdowns in sales, while Toronto, San Francisco, Paris, and Sydney continue to see overall sales growth.
Since London prime property has been topping the international luxury real estate market for years, it is interesting to investigate in depth the latest luxury housing market trends in the British capital and how these have been unfolded in 2016. This year has been a difficult year for London's luxury property market and although forecasts for 2017 are indicating that this picture might continue, there could be major opportunities on the horizon for overseas buyers.
The reason behind the strike of values for luxury properties in London was merely based on two axes. According to property research network LonRes, the higher sales taxes of 2016 and the uncertainty developed from the outcome of the Brexit referendum led the sellers to accept an average discount of 10% in order to achieve sales, compared to 4% occurred in 2013.
Source: LonRes, Residential Review. Autumn 2016
Marcus Dixon, head of research at LonRes stated that "If buyers were facing increased stamp duty on the way in, they are now asking themselves what they will be facing in terms of capital-gains tax and inheritance tax on the way out" and added that "Next year may mark a couple more percentage points off prices, but it's transaction volumes that will really be further suppressed." It is projected that the market will remain restrained for 2017 due to the reduction on mortgage interest relief, the increase on profit tax and a series of new rules that made their appearance in regards to inheritance tax.
On the other hand, Prime central London experienced a 17% increase in sales over the last three months compared with the previous three, according to LonRes. Prime London rose by 4% with only prime fringe market seeing a further fall in transaction volumes, down 9% on the quarter. However, comparing the third quarter of 2016 with the same three months last year, it seems that the transactions remain 34% lower in PCL, 37% down in prime London and 42% off 2015 levels in prime fringe.
As it is shown on the above graph, in March 2016, a month before the additional stamp duty levies (Stamp Duty Land Tax (SDLT) were to take place, there was an incredible 39% increase in transactions when the buyers proceeded quickly to prime housing purchases. Subsequently the next month, in April 2016, a record year low was reported on luxury home sales, which nevertheless, showed signs of recovering the following months.
In terms of prices, the data indicates that they have reached a 22-month low in September, but by November 2016 they experienced a brief increase ranking them now at 6.9% below the November 2014 figure. The average price per square foot is estimated at £1,787 ($2,208). Mr. Dixon, characteristically highlighted that the "buyers were expecting prices to fall considerably more after Brexit; hence they were offering considerably less because nobody wanted to catch a falling knife," What is important though is his remarks that many buyers are currently thinking that the "prices have bottomed out and see it as a good time to get back in the market." He said however that the small increase which occurred from the "change in sentiment" isn't projected to continue within 2017 since the prices are not expected to experience a significant change.
Source: LonRes, Residential Review. Autumn 2016
Nevertheless, under these circumstances, there are major opportunities especially in the cases of wise investors who are following the market trends. Domestic and international buyers continue to identify good value, and as such, homes that are priced correctly, keep being sold. Some agents have found that Brexit prompted a correction to house prices that were slightly overambitious hence, leading to high – end property sales. Following the dramatic fall in the value of sterling since Brexit, a buying opportunity for overseas investors was subsequently created.
Although domestic buyers are now paying less for homes in central London, it is the investors who are buying with other currencies that continue to experience the most considerable savings. In October the pound fell to a five-year low against the euro and a 31-year low against the dollar. This equates to a saving of more than 30% compared with peak values for those buying in dollars and 28% for euro purchasers. According to LonRes, the three-month period after the Brexit vote, twice as many of their subscribers who were surveyed reported a rise in overseas buyers to those reporting a fall. New applicants from America, Europe and Asia identified as seeing the most significant increases. Asked to predict the period of the next 12 months, 57% of subscribers surveyed expected to see an increase in overseas buyers from outside the EU, with just 18% expecting volumes to fall.
However, London Central Portfolio, an investment firm that specializes in the prime parts of the capital stated that the number of new-build properties sold for more than £ 5 million in the six months to the end of October was down 83% on the same period of 2015 while the number of transactions fell from 52 to just 9. What is more, the latest Knight Frank prime global cities index, record both New York and London as having year-on-year negative growth, lying in 29th and 30th place out of a basket of 37 leading cities.
On the same note, big decrease was also recorded across England and Wales on other prime properties with sales of homes worth more than £ 10 million down by 75%, from 61 to 15. Transactions for all UK properties costing between £ 5 million and £ 10 million were down by 51%, from 201 to just 99. The figures were based on the Land Registry data and confirmed that the higher rate of stamp duty on second homes that came into effect at the start of April, had significantly influenced the buyers' behavior. The higher rate refers to the 3% increase on the normal cost. For example, this rule added £150,000 to the upfront cost of buying a £ 5 million property.
LCP's chief executive, Ms. Naomi Heaton added on the same context as Mr. Dixon that it "has been one step too far for both domestic and international buyers", when referred to the introduction of a higher tax on second homes "against a backdrop of uncertainty around Brexit and the direction of travel of the UK's economy".
Developers have also reported a slowdown in sales at the top end of the market, with Berkeley Homes, one of the biggest British property developers and listed on the London Stock Exchange, recently reporting a 20% fall in demand as a result of the new stamp duty rate and concerns over the UK's decision to leave the EU.
The luxury real estate market in Manhattan reached its lowest point since 2013 this year, according to a year-end report by brokerage firm Olshan Realty. Based to the report, by mid-December 2016, 1102 properties exceeding $4 million were sold in Manhattan, indicating an 18% decrease compared to the same period in 2015. Another figure made known through the report, was that a luxury property in 2016 was, on average, listed for 318 days before a sale, up two months from 243 days in 2015.
The report attributed declining luxury sales numbers to "classic price resistance." The average asking price for Manhattan real estate rose by 2% in 2016, but as the report showed, demand did not increase at the same rate. Another aspect that added to the decline of sales in prime housing was the emerging popularity of Downtown condominiums over stuffy Uptown co-ops and townhouses. The report showed a 25% in co-op contracts worth more than $4 million, "signaling a continuing market shift in the luxury market to new condos that offer freedom of ownership, new infrastructure, robust amenities, and some hip architecture."
Source: The New York Times, A view from a model apartment on the 86th floor of 432 Park Avenue
"There's definitely more negotiating going on," Kathryn A. Korte, the chief executive of Sotheby's International Realty, which specializes in luxury properties, has highlighted. She has confirmed the shift at a range of prices, and characteristically said: "I wouldn't say it's completely a buyer's market, but buyers have jumped in when they've seen value." Jonathan J. Miller of the appraisal firm Miller Samuel added on that by commenting that "There's a mismatch between price and value, and the buyers know that."
Mr. Miller provided the illustrative example of 432 Park Avenue, where buyers who signed contracts and completed their transactions this year received price reductions averaging 10%. In another case, a penthouse on the 88th floor sold for $60.9 million to the money manager Lewis A. Sanders at a 20% reduction from the original price of $76.5 million."The current contract prices reflect the new market," Mr. Miller said, "not the one established several years ago".
However, in late December, the Manhattan real estate market reached new heights once again in 2016 with New York City's highest residence, a penthouse at the top of 432 Park Avenue, finally sold at the highest price for the year, a little more than $87.5 million. Mr. Miller and others are optimistic about New York's prime market for 2017. As it is reported, while certain buyers can afford to be more selective because they have more options, demand remains strong. In some circles, they are discussing about an ultimate undersupply of inventory (beyond what's already happening in the market's lower end), as the city's population continues to grow.
Nevertheless, the properties that are priced well seem to be selling faster. The chief executive of the Corcoran Group, Pamela Liebman, noted that "There continue to be some robust bidding wars, and apartments selling quickly" but "for 2017 to be a successful year," she added, "the seller will have to get on board and understand that prices have taken a pause — even in the lower end of the market."
Market experts are projecting that few things might change in the upcoming year, despite of interest rates edging up. CityRealty's year-end report predicts that average prices for Manhattan apartments will remain about the same, though it forecasts a slight decrease in average condo prices, to $2.9 million from $3.1 million this year. All of that could transform in 2018, when the much anticipated 220 Central Park South, being developed by Vornado Realty Trust, is expected to open. One of the listings there, brokers say, is a four-floor apartment at a record-breaking price: $250 million.
The Donald Trump Effect
It seems that British brokers are in general optimistic about Mr. Trump's potential effect on the London luxury housing market. As Frank Knight Chief Economist James Roberts put it "The U.K. and its commercial and residential property markets, ironically could end up beneficiaries of the shock election result" and added that "until now the U.K. has appeared a political outlier since the Brexit vote, for having turned its back on the economic consensus that favored large trade blocs. Today, Brexit appears to be part of a wider political groundswell" explicitly referring to Mr. Trump's election.
A delighted reaction came also from Peter Wetherell, the chief executive of London West End, predicting that Mr. Trump's election will enhance U.S.-U.K. trade relations that could subsequently lead to more American investment in London prime real estate. "Post-Brexit there has been a significant upturn in American buyers and renters into the prime London resi-market. The first post-Brexit sales deal in Mayfair was to an American buyer who bought a big flat in a significant eight-figure deal," Mr. Wetherell mentioned in a statement the day after the American elections.
He added that "He will be very pro-property, and this can only be a good thing for London," particularly Regent's Park, Grosvenor Square and West London, which have been very popular among U.S. expats. Becky Fatemi, director at Rokstone brokerage, indicated that Trump election could lead foreign buyers from the Middle East, searching prime property in London rather than Los Angeles or New York mainly due to his anti-Islamic rhetoric.
Regarding the domestic impact of Trump's election, according to Donna Olshan, a New York broker and publisher of the weekly Olshan Report on luxury contracts, there are three drivers of New York City real estate "One is Wall Street, how is it doing; two is supply and demand; and the third is how do people (particularly foreigners) feel about New York as a safe place for their financial assets". She said that "If New York is seen as safe financially, then we're in good shape."
Wall Street has already seen some gains following Donald Trump's election and especially for construction companies like Caterpillar, the results were quite positive. Bank shares have also moved sharply, with the SPDR Financial Select Sector exchange-traded fund reaching its highest point since 2008 during this month.
Moreover, the suggested tax breaks to companies and their executives could mean investments in New York's real estate. "Trump's economic platform proposes a large tax cut and investment in infrastructure which are generally favorable to housing," Jonathan Miller, the Chief Executive of appraisal firm Miller Samuel, told Mansion Global the day after Mr. Trump's election victory. And although New York citizens voted predominantly for Democratic candidate Hillary Clinton, the shock of her defeat did not seem to slow contract signing on megamillion homes. There have been two strong weeks for the luxury market since the second week of November, with 40 contracts signed, according to the Olshan Report.
Mr. Miller positively remarked that "with world economies generally falling or remaining weaker than the U.S., I'm skeptical of any adverse impact to housing markets like New York, which I believe will remain a global safe haven for investors."
Another market that has recently experienced the increase of the double stamp duty is Hong Kong. The government has adopted a 15% standardized stamp duty across the board, except for first-time local buyers, in November in an effort to restrain the rise of home prices. However, the residential property sales in Hong Kong have considerably increased, exceeding the market expectations that projected that property sales would be affected in the short-term, after the Hong Kong government decision.
"The policy is expected to push investors into non-domestic sectors and homebuyers to the primary market, with developers offering various sweeteners to compensate for the tax payment. This, combined with seasonal effects, is expected to slow down residential sales in November and December," said David Ji, head of research at Knight Frank Greater China. "However, we believe that luxury residential sales remained stable as shown by the conclusion of a number of super luxury deals in the month," said Pamela Tsui, senior manager of Research & Consultancy for Greater China at Knight Frank, in the report.
The latest publicized data from the Hong Kong Land Registry shows that residential property sales rose 138.5% year-over-year to 6,739 units in November, which was 2.1% higher than October, with the total value reaching HK$61.6bn (£6.25bn), up 13% from October and almost doubling that of November 2015. In March, Hong Kong's property market reached this year's lowest point, with home prices falling by 13% from their peak in September 2015. But during the six months from April to October, prices rose a cumulative 8.9%, according to Knight Frank's monthly report, citing data from Hong Kong's Rating and Valuation Department.
The ultra-luxury home sector has remained exceptionally strong, as wealthy foreign buyers, particularly from mainland China, continue to invest in Hong Kong's super-luxury property market as part of a "diversified asset-safeguard strategy", despite low rental yields of around just 2%, helping to cement the city's place as the world's most expensive housing market.
Ms. Tsui is estimating that there will be a decline in residential sales prices. "We do not expect a mild U.S. interest-rate rise to dampen the local residential market, but abundant supply, as well as economic and policy uncertainties, may drag down mass residential prices by about 5% next year".
Barcelona seems to be thriving again, with local agency Lucas Fox reporting a 40% increase in sales compared to 2015, with British buyers to have increased by 10% this year, according to Lucas Fox's co-founder Alexander Vaughan. Prices are still around 20% lower than their 2008 peak. Additionally, Ibiza and Mallorca are becoming a priority for agents for 2017. Palma de Mallorca's prices are likely to rise by 8-10% next year, following 12% rises in 2016, according to Alejandra Vanoli of Mallorca Sotheby's International Realty who said that "We see most interest for property in Palma priced €1.5m to €8m."
The Portuguese capital, Lisbon, has been doing very well this year too and its popularity is expected to keep on, with overseas buyers making the most of tax and residency benefits offered by the Golden Visa and Non-Habitual Residencyschemes.
Other areas that where luxury residences will open their doors for buyers within 2017 are St Lucia, with beachfront villas starting at $1.325m, Cambodia with prices begin from US$480,000, while the newly-opened Six Senses Zil Pasyon in Mauritius, offers villas from €4.8m.