Wealth-X has joined forces with Sotheby’s International Realty to decipher the trends and home-buying motivations of some of the world’s most wealthy individuals.
Buying a second or third home is a popular activity for ultra high net worth (UHNW) individuals – in fact, according to the most recent Wealth-X report – 79% of this demographic own at least two homes, and 53% own three or more.
However, in a spin away from familiar considerations for purchasing property – including family, lifestyle or investment – UHNW individuals are increasingly buying homes for reasons that go beyond traditional motivations or which take familiar motivations in new directions.
For these buyers, homes are seen as ‘opportunity gateways’ and buying decisions are made based on what opportunities will become available as a result of owning the home.
The latest Wealth-X report, in partnership with Sotheby’s International Realty, examines two emerging trends in particular within this new field of UHNW home buying and identifies emerging property hotspots for this coveted slice of society.
“ In the past year, market volatility in a number of nations has led buyers to seek homes in the West ”
The first is international home buying by UHNW individuals from emerging market nations seeking a safe investment diversification.
In the past year, market volatility in a number of nations, and particularly in China, has led buyers to seek homes in economically and politically stable locations in the West as a hedge against market uncertainty at home.
The second trend among UHNW real estate investors is home buying as part of a program to gain citizenship or residency status in foreign nations.
In the past decade, several Caribbean and European nations have begun offering programs through which individuals can gain citizenship status by making a sizable investment in the local economy. The required investments range from US$200,000 to over US$1million and in most cases involve the purchase of real estate
“ 12% of second homes purchased by emerging market UHNWIs are located outside their country of residence ”
In Q2 2015, the UHNW Residential Real Estate Index rose to 115.2, surpassing its previous high in Q1 2015 of 112.1. The index is up 8.2% year-on-year, and 2.7% from Q1 2015.
This continued rise in the index represents the confidence of UHNW individuals to invest in luxury residential real estate.
But who are they?
Interestingly, 12% of second homes purchased by emerging market ultra-high-net-worth (UHNW) individuals (those who reside in BRICS nations) are also located outside their country of residence.
Chinese UHNW individuals in particular make up the third largest share of foreign UHNW homeowners in the United States, behind only Canada and the United Kingdom.
UHNW individuals from Brazil, Russia, India, and South Africa are also pursuing opportunities for stable residential real estate investment growth in major urban hubs abroad. Their decisions are driven by a largely similar set of concerns: market fluctuations, business considerations, and political upheaval.
“ New York has seen dramatic rises in property values, particularly at the top end of the market ”
Looking abroad, such investors will find luxury residential property markets in major hubs like New York and London have been red-hot.
London residential real estate prices in central neighborhoods have risen 42% from June 2010 to June 2015. Price increases have slowed considerably in 2015, up only 2% year-on-year, but the outlook remains positive.
New York has also seen dramatic rises in property values over the past 5 years. Growth has been particularly prominent at the top end of the market – property listings of over US$30 million. There were 73 such homes listed for sale in June 2014 and by June 2015 there were 114.
While property values in these cities are unlikely to stagnate any time soon, buyers have also begun looking into alternative markets outside the global hubs that offer similar advantages: long-term growth potential, luxury lifestyle opportunities and amenities.
Beyond New York and London, UHNW investors looking abroad have primarily targeted major Pacific Rim cities including Sydney and Vancouver. Each of these cities presents a unique market opportunity.
Many of these 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. Homes in these regions have grown in value significantly over the past five years, if not quite as rapidly as London or New York.
Over the past year, their value has begun to increase considerably, as home-buyers have begun showing greater interest in these markets.
Sydney home values rose 15.1% year-on-year. Vancouver home values rose 12.3% year-on-year.
For real estate investors seeking opportunities outside their domestic markets, luxury real estate in each of these cities is an economically stable, politically safe, and portfolio diversifying investment.
Each of the citiespresents a further attraction of offering lower prices than major global UHNW hubs. Furthermore, real estate holdings in these cities are likely to continue rising in value in the coming years.
“Global citizenship” is becoming an increasingly popular tool for the world’s ultra wealthy.
There are many different reasons why a UHNW individual might seek a second citizenship including, but not limited to: greater stability and security, tax efficiency, ease of travel, higher standard of living, increased options for children’s education, and investment opportunities that may not otherwise be available.
An increasing number of nations offer citizenship by investment programs, by which individuals can gain residency to a country following a significant investment, so for UHNW individuals seeking citizenship or visa status in a foreign country, buying a home is often the best route.
“ Financial requirements tied to global citizenship range widely – from a US$200,000 minimum real estate investment to US$700,000 ”
Financial requirements tied to global citizenship range widely – from a US$200,000 minimum real estate investment in Dominica to a US$700,000 minimum real estate investment in Spain and Cyprus. In return, investors gain residency or citizenship status after a multi-year waiting period.
Interest in such programs comes from individuals in a wide range of nations, but much of it arises from the Middle East, as shown in the infographic below.
A number of nations offer programs where residency or citizenship can be gained via investment in local business interests, however, in those nations which also attractive tax regimes, buying a home can be part of an attractive wealth preservation plan for interested UHNW individuals.
Examining this trend in greater detail, Wrealth-X has focused on three spotlight regions in Europe and the Caribbean which are fast becoming favourites for UHNW individuals on the move. These are: Malta, the Bahamas, and São Paulo.
Malta: This archipelago in the central Mediterranean between Sicily and the North African coast, is famous for its stunning geography, sea views and numerous UNESCO world heritage sites. Foreign nationals are allowed to buy one property anywhere in Malta, though in specially designated regions they may purchase additional properties. Especially attractive properties are located in Sliema, on the east coast, which features several new penthouse developments, and the Three Villages, which are home to a variety of exclusive resort homes.
Property prices for homes costing over US$1 million average out at around US$2.5 million.
Bahamas, Paradise Island
Bahamas: Made up of over 3,000 islands and cays with a year)round tropical climate and some of the best beaches known to man, the Bahamas have emerged as the most attractive Caribbean destination for developers as well as for celebrities and the generally wealthy.
Paradise Island, Lyford Cay, Eluthera and Abaco Islands are among the most desirable places to call home, and property prices for homes costing over US$1 million average out at around US$2.7 million.
“ São Paulo is deeply cosmopolitan and always alive with energy ”
São Paulo: With over 19 million people, São Paulo is both Brazil’s largest city and one of the world’s most populous. It is also the economic hub of a nation of over 200 million. São Paulo is deeply cosmopolitan and always alive with energy, offering a wide range of cultural activities to UHNW buyers from any background.
Property prices for homes costing over US$1 million average out at around US$2.5 million.
This is an excerpt of the Wealth-X & Sotheby’s International Realty ‘UHNW Luxury Real Estate Report:
Homes As Opportunity Gateways’ 2015. For further details we encourage you to download the full report
To further investigate wealth and affluence on Luxury Society, we invite your to explore the related materials as follows:
- UHNWIs Will Evolve & Prosper In Next Decade
- 7 Key Takeouts From The 2015 World Wealth Report
- There Are More UHNWI’s in California Than In Russia