Safe as houses

Written by: Alexander Garrett Posted: 05/04/2021

BL72_property1High-end property has long been growing in favour among high-net-worth investors. But has turbulence from the Covid-19 pandemic and Brexit changed what investors are looking for? And does property remain a secure way for HNW individuals to diversify their portfolios? 

When Gouray Lodge, a historic house at Grouville in Jersey that was once the home of the Lieutenant Governor of the island, Sir Tomkyns Hilgrove Turner, was sold for just shy of £10m a decade ago, eyebrows were raised and headlines were written about the record price. 

“Now, we regularly see properties selling for £25m-£30m and beyond,” says Graham Marsh, Director, Private Wealth, at Equiom. “So that’s a big change we’ve seen in that time.”

The relatively small size of – and limited space on – the Channel Islands means opportunities to buy trophy assets on the islands are scarce, with just a few dozen high-net-worth individuals having the chance to take up residency last year.

However, luxury property has become a ubiquitous feature all around the world, establishing itself as an essential component of wealthy individuals’ portfolios. As a result, since the financial crisis of 2008-09, prices at many of the most sought-after locations have scaled new heights. 

But what impact has Covid-19 had on the market? While the pandemic hasn’t exactly brought the business of shopping for signature residences to a halt, it’s certainly made the purchasing process slower and more difficult.

For the super-wealthy, buying property is often an international activity – and often closely aligned to travel habits. 

“Under normal circumstances, in the summer we would see the entourage from the various royal families within the Middle East getting out of the heat and spending time in Paris, London, New York and other similar places of interest. 

“And they would combine that travel with looking at marquee properties. The pandemic has obviously made that very difficult,” Marsh explains, adding that many other big buyers at the top end of the market travel in from Asia – China, Hong Kong and Malaysia, in particular.

Islay Robinson, CEO of high-net-worth mortgage broker Enness Global, agrees. “You can still buy in France, you can still buy in the Balearics… In fact, you can buy pretty much anywhere at the moment. But it’s very tricky to do so. You can’t get there, you can’t view the properties, the surveyors are taking ages and the banks don’t really want to lend. So, while it’s technically possible, no-one’s really doing it.”

Online investment

That said, some determined buyers have persevered with their property-buying plans during the past year. 

“There has been a significant increase in online video tours of properties – replacing the in-person viewing experience – and that has proved sufficient for many buyers who cannot be present,” says Claire Hart, Head of Retail Products and Segments at Standard Chartered Bank in Jersey. 

Buying any property without physically viewing it would have seemed a far-fetched concept for most of us before the pandemic. But, as Hart points out, that’s less of an issue when property purchases are an investment rather than the purchase of a ‘home’. 

“Often HNWIs who are buying UK property from overseas as part of an investment strategy have less emotional attachment than if they were buying for primary residential use,” she says.

Regardless, many believe the easing of travel restrictions, expected later in 2021, will fuel a return to greater activity at the top end of the residential market.
 
The demand for luxury property remains; it’s just that it’s been frustrated by the limitations on jetting around the world.

In addition, the market may well receive an additional boost post-Covid-19, as wealthy investors who have done well during lockdown and been unable to trade, look to invest their wealth and become active again.

While thousands of businesses have struggled during the pandemic, others have thrived – not least the Amazons and tech goliaths – and many wealth holders will emerge from the lockdown with more to invest than ever.

Having said that, there may well be a shift in the type of properties wealthy buyers are looking for. 

“I think we are seeing a real move towards buying bigger European lifestyle properties, with land and space, and somewhere you can stay for a prolonged period of time,” says Robinson.

He believes the Covid lockdown has refocused the minds of many investors on properties that can support new ways of working and living. 

High-rise luxury apartments in cities, on the other hand, are struggling, he says. “There’s very little interest unless there is outside space now – land, gardens, features like that. Even if it’s the most amazing property in the world, if it hasn’t got its own entrance and the kind of flexible living space that can be used for gyms and homeschooling, there just isn’t the same interest.”

BL72_property2Hot property markets

So where are the private wealth clients looking to buy? London remains high on UHNWIs’ shopping lists. Demand for UK property has been high in general during lockdown, says Hart, thanks to government incentives aimed at keeping the market moving. 

In addition, the pending introduction of a new 2% stamp duty land tax (SDLT) surcharge for overseas investors who are not resident in the UK has hastened activity for some, Hart says. “It’s resulted in an increased urgency and demand for deals to be done prior to that time,” she says.

Brexit, it’s generally agreed, has done little to put wealthy overseas buyers off the UK. Marsh believes his clients are aware of Brexit, but they don’t regard it as a major issue when it comes to purchasing high-end property. 

“Outside of Europe, they don’t really see it as either a negative or a positive factor. In fact, going forward, I think it could come to be seen as more of a positive,” he says.

Other key global cities favoured by the wealthy, such as Paris and New York, are also expected to retain their cachet post-Covid-19, while ‘playground’ locations such as the south of France and the Balearics are likely to be more popular than ever in the post-pandemic world. 

Robinson picks out Ibiza as “still one of the most desirable property markets there is, particularly because of the lifestyle”, and says Italy is also growing in popularity, with HNW mortgage lenders starting to cater for wealthy overseas buyers. 

For UK investors and HNWIs, Brexit has raised a barrier, however. UK passport holders can no longer enjoy freedom of movement and are restricted to staying a maximum of 90 days out of 180 in the EU – not much fun if you want to winter on the Med.

However, there is a solution that money can buy. Many European countries now offer ‘golden visas’ – effectively a shortcut to an EU passport if you are prepared to invest a certain amount of money in property, a threshold that would often be passed at the luxury end of the market. 

Portugal, Greece, Malta, Cyprus and Italy are among the countries offering schemes that provide residency, with free travel in the Schengen Zone, and this can lead to a full EU passport. The Portuguese scheme requires investment from as little as €350,000.

Despite the pandemic delivering a relatively temporary interruption to high-end property investment, and Brexit creating some technical issues that require creative workarounds, there remains no shortage of appetite and money available for high-end purchases.

And, with interest rates set so low in many parts of the world right now, many investors are seizing the opportunity to invest in high-end property without risking their own wealth.  

The strategy for many is to borrow for investment and create “a hedge against inflation”, according to Robinson. 

“The amount of stimulus into economies around the world must lead to inflation. And using debt with property – other than things like gilts – is one of the best ways to protect the real value of your assets. Your borrowings shrink over time. So there are strategic reasons to buy property.”

Within the context of a private wealth portfolio, residential property keeps pace with inflation and provides diversification from equities and other securities, Marsh points out. “If there’s a crisis – a banking crisis, for instance – then other assets tend to all react in the same way,” he says. “Property tends not to, depending on what type of property it is and where it is located.”

Ultimately, wealthy individuals buy property partly for rational reasons – such as investment – and partly because they like it. A penthouse in Manhattan with marble floors, handmade panelling and gold taps is something you can show off to your friends, family and business associates – a particularly valuable attribute in some cultures.

So long as there is wealth in the world, it seems, there will be luxury real estate to cater for those who own it. And that will be true long after the pandemic.

The world’s top-performing luxury property markets

The annual Christie’s International Real Estate Luxury Index rates the relative luxuriousness of primary market cities with at least one million residents. It includes the following factors: market record sale price, average price per square foot for luxury homes, number of sales over $1m, percentage of listings over $1m, average price for luxury homes sales, percentage of international and non-local buyers, and percentage of secondary home sales. It ranks the top 10 markets at the moment as:

1. London
2. Hong Kong
3. New York
4. Los Angeles
5. Singapore
6. Sydney
7. Miami
8. San Francisco
9. Paris
10. Toronto


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