Luxury Insights

Wealth rebuilding bodes well for luxury market

U.S. Millionaires' Ranks jumped 16 Percent in 2009, Study Says

"The millionaires’'club in the U.S. grew by 16 percent in 2009, following a 27 percent decline in 2008," according to a new Spectrem report. Affluent households -- those with net assets of $500,000 or more -- increased 12 percent to 12.7 million. At the same time, the number of households with a net worth of over $5 million rose 17 percent to 980,000. Finally, the magazine reports, "The average age of a so-called affluent investor is 58, compared with 62 for a millionaire and 67 for an investor with more than $5 million."  Value of a household’s primary residence is not included in the calculation.

Russian billionaire backs out of deal, loses $50 millon deposit

Back in August of 2008 Russian billionaire Mikhail Prokhorov put the French mansion Villa Leopold under contract for a record $750 million.  In March of last year he tried to back out of the deal and wanted his $50 million (€40 million) deposit back. 

Yesterday the courts ruled in favor of the owner Lilly Safra, who can not only keep the €40 million but was also awarded damages of €1.5 million.  Ms. Safra indicated that she would be donating the money to charities.

The Times Online has more details here

Hong Kong Real Estate on Fire: IPJ

Hong Kong property company Sun Hung Kai Properties Ltd. announced it had sold 900 apartments over the weekend for a total of HK$4.2 billion ($540 million).  Not bad for a couple days work. 

The full story on the International Property Journal website.

 

The Chinese are Coming

Kevin Brass has an interesting article in the International Property Journal on Chinese investors' growing interest in US real estate, plus some good tips on working with Chinese clients.

For the past year groups of Chinese investors have been touring the United States inspecting residential and commercial property, heralding what some industry executives believe will be a new wave of buyers.... few doubt that China is poised to become a significant player in U.S. real estate.

via www.internationalpropertyjournal.com

Dubai Refugees Buying in New York

By Patricia W. CliffSenior V.P. and International Specialist Corcoran Group
In the past two months more than two dozen of my new clients in New York City--about 10 to 15 percent of my buyers--have been refugees retreating from failing investments in Dubai. These investors, stung by the recent collapse of the real estate bubble they had enjoyed overseas, are searching to park their money in a secure market that they can trust, often in new developments. To these buyers, New York City--particularly Manhattan--is an attractive alternative to Dubai. Investors can depend on the quality construction of its buildings and the consistent desirability of its location to lead to good returns.

via internationalpropertyjournal.com

Almost 10% of jumbo mortgages 'seriously delinquent'

According to a new report by Fitch Ratings, "serious delinquencies" on prime jumbo mortgages rose again last month, nearing 10%.  "Serious delinquencies" are payments at least 60 days late.  

"The trend line for delinquencies indicates the 10% level could be reached as early as next month," according to a Fitch statement. The rate last month reached 9.6%, nearly triple that of last year.  Jumbo mortgages are loans larger than Fannie Mae or Freddie Mac will finance.

It would be interesting to know what percentage  of these loans in arrears are strategic defaults. Are you seeing luxury homeowners choosing to stop paying their loans even though they might be able to afford them?

Bubble Talk in Canada and London

The Wall Street Journal is running a couple of articles looking at the rapidly appreciating real estate markets in Canada and the London and the concerns that these might be "bubbles."

Housing Rebound in Canada Spurs Talk of a New Bubble

Last Wednesday, a housing-price index for Canada's six biggest cities posted its seventh straight monthly gain, showing home prices in November are now back to their prerecession peak. Another broader measure shows the average home price in 2009 hitting a record. Home building has picked up too, with housing starts in December jumping to their highest level since October 2008...

Canada's finance officials say they're watching home prices carefully. The finance minister in December outlined steps he can take to cool things down, if needed. The central bank last month said it is watching the booming market with "vigilance, but not alarm."

Some observers foresee trouble...

The London Real Estate Bubble Is Back—and It's Scary

Looking at the real estate listings here is like stepping back in time to that unreal, giddy world of three years ago—before Lehman, before subprime, before AIG. Back to a period when everyone was either rich or on their way, either from flipping condos or running hedge funds, and the only direction was up.

But these prices are now, and they contain an ominous message: The London real estate bubble, arguably the biggest one of all, still hasn't popped...

California million dollar home sales “down, but not out”

In 2006, million dollar home sales in California were clicking along at a brisk rate – one home sale in every nine was at the million dollar or above price point.  In 2009, sales of California’s million dollar properties had skidded to just one sale in every 25, for a total of 18,621 million dollar sales in the Golden State for the year. 

Around 29% of the buyers in the upper tier paid all cash.  On the other side of the coin, in 2009, there were 4,925 notices of default (step one in a foreclosure) recorded on homes which had previously sold for at least a million dollars. 

This is all according to a new report from San Diego based MDA DataQuick.  

State wide, the company reports that of California’s million-dollar-plus sales: 

• 332 sales were for more than $5 million
• 228 sales were $4 million to just under $5 million
•  590 sales fell in the $3 million to just under $4 million
• 1,902 sales were $2 million to just under $3 million
• 15,569 sales were between $1 million and $2 million

Wondering what you got for your money last year?  DataQuick reports a median luxury home size of 2,646 with four bedrooms and three baths.  Median price for luxury homes for the year was $605 per square foot (down about 10% from 2008)

The most expensive confirmed purchase in California last year was a 22,721-square-foot, 9-bedroom, 10-bathroom Bel Air house built in 2008 which sold for $26,500,000 in July.

A new auction record and trends in big spending

8 minutes and $104,000,000 later...a new art auction record.

An Alberto Giacometti bronze brought £65,001,250 (about $104,000,000) at Sotheby's Impressionist and Modern Art Evening Sale yesterday in London. 

As Georgina Adam, editor-at-large of The Art Newspaper explains to the BBC, "There's a market which is sort of exceptional for exceptional things.  If something is a one in a lifetime opportunity, people will really step up to the plate and they will spend enormous amounts of money because it was a now or never opportunity."

Overall it was a stellar event for Sotheby's.  An oil painting by Gustav Klimt fetched over £26 million and the sale total for the evening auction was £146,828,350 (almost a quarter billion dollars) also a record.

On the London real estate front, The Knight Frank Prime Central London Index shows  a 1.1% increase in prime Central London real estate prices in January, with properties at the top of the market (the £10m+ segment) showing the greatest price appreciation.   Inventory is low and buyers are lining up.

Despite the continued global economic crisis and uncertainties in the banking and financial sectors, the very affluent are clearly still making choice investments and spending. There are other hints at a possible loosening of the wealthy's purse strings and reports to expect more private jets at the super  bowl this year...

What are you seeing in your luxury markets?

Collapsing Commercial Market in 2010 to Further Strain the Luxury Residential Market?

Yesterday DS News ran an article on the expected collapse of the commercial real estate market in 2010.  Here are some excerpts  (emphasis mine):

According to the Emerging Trends in Real Estate 2010 report, issued by the Urban Land Institute and PricewaterhouseCoopers, most investors will recognize massive losses in the commercial real estate market. Value declines will eventually total 40 to 50 percent of market highs, and surveys in the report indicate 2010 will be the worst time for investors to sell properties in the report’s 30-year history...

Richard Parkus, Deutsche Bank commercial real estate analyst, believes this is just the tip of the iceberg. He predicts enormous losses and a large number of banks failing as a result of the declining commercial real estate market.

As tenants go bankrupt, downsize, or invoke their escape clauses, commercial real estate property owners have begun to feel the serious effects of the economy. By the end of 2010, the national vacancy rate is expected to reach 18.5 to 19 percent, the highest recorded since 1986.

Of course if this comes to pass it will be more bad news for the luxury residential market.  As you know  the investors, brokers, developers, tenants (business owners), and other players in the commercial market are often potential buyers and sellers of luxury homes.   Even in markets that are generally stabilizing or improving in 2010 this could mean trouble in the upper tier.