A comprehensive study of the world’s affluent households by Luxury Portfolio International (LPI) has revealed compelling metrics on the demand for residential real estate among the world’s wealthiest.
The recently released study, State of Luxury Real Estate, focused on consumers in the top 1%-5% income bracket of 17 countries, representing more than 30 million households.
The study found that of the 30 million+ households represented, more than 15.5 million were in the market for residential real estate over the next three years. Conversely, the report also found that demand for purchasing residential real estate by this segment far exceeds the number of sellers, with slightly more than 10 million looking to list their home for sale.
The more than five-million-home gap between buyers and sellers in this segment creates a seller’s market within the global prime residential real estate market. The total market effect is expected to be a near-term price increase and greater demand for new luxury developments.
Highlights from the report include:
- While real estate prices vary dramatically from country to country, a viable luxury threshold is homes in excess of US $1 million. Of the 15.5 million consumers who indicated an interest in purchasing residential real estate, 66% of that segment (10.3 million consumers) noted a desire to purchase a residence valued at US $1 million or more over the next three years.
- Real estate is the leading investment category of the day, with luxury buyer sentiment a strong ‘buy,’ and a low inclination to ‘sell.’
- One-quarter of global luxury buyers have an investment or a rental property in mind for their next purchase.
- New construction in newly developed neighbourhoods is the leading global preference, commanding the highest price among the luxury buyer segment.
- The pandemic has impacted homes at all price levels, including the luxury sector, with trends borne from quarantining including adjusting to all members of the household working from home; a heightened need for self-reliance at home; and recognition that spontaneity brings a welcomed break. For the most part, all three circumstances can be addressed within a luxury home setting.
- International luxury buyers cite non-financial reasons to live abroad, with education and COVID-19 responses influencing their motivation for a golden passport, specifically for buyers in Mexico, India, China, and the post-Brexit United Kingdom.
- Specific to the UK, they lead Europe in interest in acquiring property outside of the UK, as well as a second passport.
- Luxury buyers are planning for extended shelter-in-place scenarios for themselves, family and guests. Expectations are high that over the coming year, more time will be spent at home, with about half of luxury buyers seeking a residence with accommodations for long-term guests. Whatever their individual reason, the result is preparation for non-household members to shelter with them.
- The luxury buyer is more interested in high-quality offerings and customer service than low price. The ultra-luxury segment values brands that feature corporate citizenship, reputation and loyalty.
- While real estate as an industry has had significant technological disruptors such as online agencies over the past few years, luxury buyers overwhelmingly prefer to work with a traditional brokerage firm. 70% of luxury buyers noted as much, with 19% noting they would work with an online agency.
- Luxury buyers are bullish on the residential real estate market. 45% of those surveyed believe that it is getting stronger (more buyers) — compared to 31% who believe that it is softer (these results are impacted by in-market, in-country specifics).
- 60% of affluent consumers expect an increase in their current home’s value, primarily in the 1% to 10% range.
- 50% of luxury buyers believe that now is a good time to buy real estate, being the number one result in the survey — beating out stocks, private equity and gold, among others.
- More than one-half of ultra-luxury buyers (52%) perceive their current home value to have risen by more than 10%, perhaps incentivising them to trade up or add to their portfolio.
- As to an outlook for 2021, barring unforeseen economic or geopolitical issues, a record number of affluent households will be in the market to acquire, especially within the luxury segment.
“It is clear that affluent residential real estate buyers see opportunities within their respective markets,” said Mickey Alam Khan, president of Luxury Portfolio International®.
“We are noting a surge in buyers throughout many markets worldwide, where it continues to be a seller’s market in the luxury space vis-à-vis the previous year. We expect that trend to continue through 2021 – as well as the next couple of years — as buyers rush into the market. The ultra-luxury buyer perspective is that the current climate is getting stronger. In many markets, we see home values going up, and there is more interest in prime property,” he added.
According to said Chandler Mount, CEO of Affluent Consumer Research, real estate is an increasingly sensible investment at a time when financial and alternative investments appear potentially disconnected from traditional success indicators, like revenue and profit.
“Investment sentiment toward real estate is positive and outstrips other forms of financial investment, this bodes well for developers and resellers, along with sister industries, such as home design, art and furniture,” concluded Alam Khan.
The study was undertaken by Affluent Consumer Research Co, research partner for Luxury Portfolio International.