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Ultra-Wealthy Buy Luxury Homes for Diversification, Foreign Citizenship

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Many ultra-wealthy individuals who buy second or third homes are motivated by lifestyle fit and short- and long-term investment potential.

But a new study finds that a growing number of these buyers see homes as opportunity gateways, and base their buying decisions on the opportunities they expect to become available as a result of owning the home.

Wealthy buyers from emerging nations are looking for safe investment diversification, and others invest as part of a program to gain citizenship or residency status in foreign countries.

Wealth-X and Sotheby’s International Realty reported Wednesday that 79% of ultra-high-net-worth individuals, those with at least $30 million in assets, own at least two homes, and 53% own three or more.

Wealth-X said the UHNW Residential Real Estate index, which it tracks, rose to 115.2 in the second quarter, an 8.3% year-on-year increase, and the sixth consecutive quarter in which the index has risen.

The index’s continued rise reflected the confidence of ultra-wealthy individuals to invest in luxury residential real estate, according to the report.

The index, Wealth-X said, took into account the full range of luxury residential properties owned by the world’s wealthiest individuals. Its data showed that 211,275 ultra-high-net-worth individuals globally collectively hold some $3 trillion in real estate assets, equal to 10% of their net worth.

Emerging Trends

The report identified two emerging trends among wealthy real estate investors. Although most investors buy a home domestically, interest in international home buying has surged in the past quarter for diversification purposes.

Investors are looking to markets where property values are likely to steadily rise and, more crucially, where property values are not subject to the same economic forces that affect a large percentage of their domestic holdings.

According to the report, 12% of second homes purchased by ultra-wealthy individuals who reside in emerging Brazil, Russia, India and China (the so-called BRICs) are located outside their country of residence.

At present, Chinese individuals comprise the third largest share of rich foreign homeowners in the U.S., behind only Canada and the U.K.

Many target Western markets, including Sydney and Vancouver, have rising property values that are still three to five times less expensive than London and New York, the report said.

Over the past year, Sydney home values rose 15.1% year on year, while those in Vancouver increased 12.3%.

The second trend identified by Wealth-X and Sotheby’s finds real estate investors buying homes as part of a program to gain citizenship or residency status in a foreign jurisdiction.

The report said 20 nations in Europe and the Americas now offer citizenship or residency programs to individuals willing to make a sizable investment in the local economy.

The required investments range from $200,000 to upward of $1million, and in most cases involve the purchase of real estate.

Many residential real estate markets with such programs, including São Paulo, Malta and the Bahamas, offer good long-term investment opportunities, according to the report.

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