The growing number of very wealthy individuals globally is driving demand for ultraprime residential properties in the world’s main financial centers, according to a new report.
The value of residential property purchases over $15.5 million in “old world” London and New York and “new world” Hong Kong and Singapore will grow by 27% in the next five years, according to research produced by property developer Candy & Candy, estate agent Savills and Deutsche Bank.
In 2012, some 300 residential real estate transactions worth more than $15 million took place in the four markets. All told, those transactions exceeded $10 billion.
The report predicted that the number of such transactions would grow to 400 a year by 2017, with a total value of $13 billion. It said the growth would be both organic and incremental; neighborhoods considered ultraprime will expand and new ultraprime stock will be built to expand supply.
Demand for trophy residences is being driven by increases in global wealth. The reported counted 187,380 people with assets of more than $30 million; of those, 50,000 were worth $100 million or more.
The report said that as international markets recover in the next five years, the number of ultrawealthy people would increase by 20% and global wealth would grow from about $122 trillion to $150 trillion. Already in 2012, the number of billionaires increased by more than 10%, and their wealth grew by 14%.
Much of this wealth creation is being generated in the emerging markets of Africa, central Asia, China and South Korea. Asia’s wealth creation is already growing by 11% per annum, and that of Russia, Eastern Europe and Latin America by 9% per annum.
Following are brief profiles of the prime residential market in the four markets. New York
North America is home to more than a third of the ultrahigh-net-worth population, according to the report, and New York accounts for around one in eight in the U.S. Its top residential properties command the highest prices per square foot in the country, $13,000.
Still, New York ranks seventh globally for prime and ultraprime properties. Prices fell 1% between 2007 and 2012, according to the report. As a result, Asian and other “new world” city inhabitants view New York as a value play, especially if the American economy continues to recover. Overseas buyers have recently made several record-breaking purchases in New York, taking advantage of the weak greenback and the U.S.’s safe-haven credentials. More than 70% of ultraprime residential purchases are by non-U.S. buyers.
Cooperatives and condominiums dominate New York’s prime residential market. Condos have outperformed during the latest recovery because they are the only type of apartment building freely available to foreign buyers—and do not require the kind of financial disclosure co-ops do—and are in short supply compared with co-ops.
In terms of transactions worth more than $15.5 million, London is a bigger market than New York and appeals to buyers from Eastern and Western Europe, the former Soviet Union, the Middle East, north Africa and Asia. Fully 32% of its ultrahigh-net-worth population is not domiciled in the U.K.
Overseas buyers are attracted by the transparent and stable safe haven, as well as by the city’s lifestyle. Demand has contributed to price growth of 24% between 2007 and 2012. For the most expensive properties, prices are up 36% over the previous high in the third quarter of 2007.