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Ultra-prime safe haven home purchases to soar

Wednesday 8th May 2013

The value of residential property purchases over £10 million in the world’s top financial hubs of London, New York, Hong Kong and Singapore is set to increase by 27% in the next five years, new research shows.

The research, which has been produced by Candy & Candy, Savills and Deutsche Bank examines the recent and immediate future of ultra-prime property markets in these four cities at the forefront of global private wealth flows. The findings also shed new light into the predicted growth of ultra-high-net-worth (UHNWI) fortunes and how this is continuing to fuel demand for ultra-prime residential properties in these four major cities.

Nick Candy, CEO of Candy & Candy comments: “By 2017 the UHNWI population is expected to have increased by 20% and their wealth by 30%. A trophy ‘safe haven’ property in a global city is typically at the top of the shopping list for wealthy individuals, and their continuing appetite for such investment is expected to exert even greater influence over global property markets in the next few years.”

Driving growth

The ultra-prime housing markets in London, New York, Hong Kong and Singapore collectively witnessed more than 300 residential real estate transactions in 2012 where the price was over £10 million according to latest analysis from international real estate advisor Savills. Together, the value of those transactions exceeded £6.6 billion. The 300 sales over £10 million seen in 2012 are expected to grow to 400 per year by 2017 with a total value of £8.4 billion. This growth is expected to be both organic and incremental as areas considered ultra-prime expand and as new ultra-prime stock is built to expand the existing finite supply, and above all, driven by the direct impact of global wealth increases and subsequent investment in top real estate.

Global wealth

As world economies strengthen and markets recover, the international super rich are set to enjoy even greater fortunes in the next five years. The report highlights how global wealth is predicted to increase by more than 4.4-5% per year – from approximately $122 trillion to $150 trillion by 2017 (source: The Boston Consulting Group). This substantial growth is already underway as the number of billionaires rose by over 10% in the past year and their wealth increased by 14%.

Much of this wealth creation is being generated in emerging markets – Africa, central Asia, China and South Korea. Asia’s wealth creation is already increasing by 11% per annum, with Russia, Eastern Europe and Latin America at 9% per annum. With large amounts of that money being invested in global real estate, this pool of wealth is changing the shape of the ultra-prime housing markets in the world’s top cities.

Ultra-prime housing markets

North America is home to over one third of the UHNWI population and New York has the highest share of this figure. Residential property in New York currently looks good value following the price falls experienced across the US. In terms of transactions over £10 million, London is a bigger market than New York with wide international appeal.  Over 70% of deals in this bracket are to overseas buyers, many of them establishing a base in which to both live and do business. The rapid rise in wealth generation in Asia has had an unprecedented impact on price growth in the prime residential markets of Hong Kong and Singapore, with property prices increasing by over 150% in each. Asia’s UHNWI population is expected to grow by 50% more than North America’s in the next five years.

The cost of ownership

The report also examines the real costs to buy, occupy and sell a £10 million property in London, New York, Hong Kong and Singapore.

Yolande Barnes, Director Savills World Research, said: “Recent changes to the taxation of international buyers owning property, particularly to stamp duty in Singapore and Hong Kong have made these locations expensive jurisdictions in which to invest. They now rank alongside New York in this respect. London’s recent tax changes pale by comparison and the UK capital remains one of the cheaper of the four cities in which to own and occupy real estate.”

Hong Kong and Singapore has experienced such rapid price growth that property transaction taxes have been significantly increased by their governments to control the markets. New York has a long established annual property tax and London has also raised its levels of stamp duty and continues to debate the merits of a ‘mansion tax’. Although tax changes have failed to have a noticeable impact on the buying habits of UHNWIs, there are fears that manoeuvres by governments will put off investors down the line.

Barnes concluded: “Evidence from different global markets suggests that the taxation of market transactions tends to reduce the incidence of these transactions so turnover rates have reduced after the introduction of stamp duty taxes. The value impact is not so pronounced  although the market may adjust temporarily, particularly in specific tiers. The likelihood is that growth trajectories resume after this adjustment has been made given the very high levels of wealth creation in new world economies, the continued search for safe stores of wealth and the global appetite for real assets. We won’t see the rate of ultra-prime house price growth abating significantly over the long term. It will be driven by the rarity value and desirability of homes in established world cities.”

              

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