Insights

Market uncertainty bolsters luxury property’s safe haven status

Several luxury global real estate markets have experienced a marked increase in demand from overseas investors and second-home buyers over the past 12 to 18 months.

It seems that, amidst heightened concerns about a wide range of economic and political factors, many high net worth individuals are opting for luxury residences as a safety net. In addition to the uncertainty created by the unexpected Brexit vote and Trump’s recent shock election, both equities and bonds have been languishing – prompting ultra-high net worth individuals to seek investment alternatives that offer more attractive returns and relative security.

During times of heightened uncertainty, investors often find a measure of comfort in investing in tangible assets such as real estate. As a result, many ultra-wealthy investors have been reducing their private equity holdings and fixed-income exposure, in favour of luxury property purchases.

Owning residential real estate is typically part of a diversified investment portfolio –since real estate offers both capital appreciation and the opportunity to generate rental income. However, ultra-wealthy individuals currently view real estate less as a pure investment vehicle and more as a safe haven in uncertain times.

Brokers note that ultra-wealthy Americans are not just buying US properties in upscale urban real estate markets like New York and Miami or vacation spots such as the Hamptons, but are showing greater interest in overseas markets than ever before.

It seems a luxury home in a foreign country is particularly appealing to wealthy Americans at present since it is a real asset which doubles as a lifestyle enhancement – while it will also cushion the buyer from any shocks the US markets may endure in the months ahead.

According to Wealth-X, international homes accounted for 16% of the non-primary ultra-high net worth residences of US millionaires last year, compared with 11% in 2010.

“Ultra-wealthy buyers are also showing a strong preference for eco-friendly, energy-efficient homes.”

These buyers are typically spending $1m (R14.2m) or more in countries where the dollar is strong – including the Caribbean and Europe, notably France, Spain, and Portugal.

According to Wealth-X, ultra-wealthy buyers are also showing a strong preference for eco-friendly, energy-efficient homes. Smart homes, in which the latest technology is installed so the residence can be seamlessly operated from any location, are also increasingly popular with luxury buyers. Finally, there has also been a trend towards purchasing a home in high-end gated communities in recent years, as security has become a major issue worldwide.

Posted by Rikus Geldenhuys