Luxury Real Estate Markets around the World

A discussion and exploration of some of the key luxury property markets around the world: in Manhattan and selected European and Asian cities. What do these markets have in common, what sets them apart from the “base,” real estate market, and how does one define the term, “luxury,” in relation to real estate.

Manhattan luxury real estate

One of the deciding factors when discussing a luxury property market, is availability versus demand. Manhattan is a small island, approximately 13.4 miles (21.6 km) long and 2.3 miles (3.7 km) wide, at its widest point, covering 22.7 square miles. Supply rarely meets demand, and comparatively speaking, Manhattan is perhaps the most robust market in the US for this reason

Driving forces

Much of the driving force behind prices of luxury homes in Manhattan comes from the financial services sector, many of whom are based on Wall Street and prior to 2008 there were 280,000 people employed in this sector, which accounted for more than 50% of the wages earned in a borough containing 2.3 million workers. At the time of writing this article, the carnage on the financial services sector bought about by the Global Financial Crisis 2008-? has yet to be fully played out.

Midtown Manhattan is the largest central business district in the USA, and Lower Manhattan the third largest, housing the New York Stock Exchange, the New York Board of Trade, the New York Mercantile Exchange, NASDAQ and the American Stock Exchange.

Other industries with a strong presence in Manhattan driving the market include the advertising industry, and the term “Madison Avenue,” has become synonymous with that industry.

Luxury Neighborhoods in Manhattan

Manhattan neighborhoods can vary quite dramatically in price, and it is quite possible to have a luxury condominium development placed directly opposite a less expensive development on the same block. Having said that, some streets and addresses are synonymous with luxury property. Park Avenue and Fifth Avenue for example are icons of luxury real estate and fifth avenue was ranked as the most expensive street in the world by Forbes magazine in 2008.

Almost any residential property overlooking Central park or the various waterways, would be considered a luxury home, and prices are reflected accordingly.

Manhattan has also attracted a number of “boutique architects,” who design one building which could them be classed as a luxury property. Many of these are scattered around lower Manhattan, rather than on a specific street or in a specific neighborhood, and command some staggering prices. Manhattan architects are always trying to push the envelope, an example being Richard Meier’s minimalist transparent towers in the West Village. Later construction quality issues notwithstanding, at the time of building were heralded as an architectural landmark.

London luxury homes

In much the same way as Manhattan, London’s luxury property market is driven by the financial services sector. London is one of the three major centers for international business along with New York City and Tokyo. Prior to the Global Financial Crisis 2008-? London’s financial sector generated approximately 20% of the UK’s GDP. Although foreign investment also plays a large part in the luxury home market in London. Foreigners may own property in the UK, while only paying tax on income actually earned there. This has attracted many high-profile foreign billionaires and much of the boom between 1990 – 2008 was driven by foreign buyers. London is a very international city, and according to the Sunday Times, was home to 68 billionaires in 2007, many from overseas, attracted by the lax tax laws.

Certain parts of London are almost certainly going to be considered luxury-only, particularly the “golden triangle,” consisting of Knightsbridge, Mayfair and Belgravia, and the most expensive streets in London are almost all in this area. Although the 2008 financial crisis has had a detrimental effect on prices across the board in London, these three boroughs will likely be fastest to recover, as there is only limited availability. Other parts of London that could be considered luxurious include Chelsea, Notting Hill, Regent’s Park, South Kensington, St. John’s Woods, and St. James.

Elsewhere in London, some areas that were previously heavy industrial or commercial, have been developed as luxury property, such as the docklands, which has developed into a major business center and is one of the few areas of London where luxury condominium developments can be sitting directly adjacent to public housing estates. Nevertheless, these areas around the docklands are slowly being redeveloped, sometimes against the wishes of earlier inhabitants. Perhaps the most famous part of the docklands is Canary Wharf, now home to some of the most expensive skyscrapers in London.

Boutique developers have also created some extremely high-end property in London. A luxury development that stands out in particular is One Hyde Park. The four penthouses are possibly the single most expensive apartments in London, rumored to be valued at one hundred million pounds each. Candy and Candy’s flagship should be completed around 2010 and less than 20% of the buyers are British.

Luxury property in Monaco

The luxury of paying no taxes, combined with a desirable location on the border of Italy and France and an almost perfect micro-climate make Monaco one of the most desirable places to live in the world, which leads to arguably the most expensive housing market in the world.

Monaco is heavily built upon and the population density is also the highest in the world. Unlike Manhattan and London, the draw for many wealthy individuals is the fact that Monaco is a tax haven, with zero personal income tax. Monaco has almost no indigenous industry except for tourism, no resources other than the location and climate, to speak of, and the state keeps monopolies on several sectors, including tobacco sales.

The most luxurious and expensive real estate is situated on Avenue Princess Grace, with prices for an apartment averaging around $18,000 per square foot even as the 2008 financial crisis was biting. Once again, much of the value is driven by extremely wealthy foreigners, and the local population is very much in the minority.

Comparatively speaking, the size, quality and standard of property in the principality tends to be lower than other luxury real estate markets – the real luxuries are the tax status, the location and perhaps – the shoulders one is likely to rub with. In an effort to increase the amount of land available, a new ward made by reclaiming land, “Le Portier,” was planned for 2014, but has now been “postponed,” until the economic crisis has played out, although the Prince also has plans to introduce eco-taxes on cruise ships berthing in the harbor.

Paris luxury property

Paris also claims a “golden triangle,” of luxury property. Avenue Champs-Elysees in the east and Avenue Georges V in the west, Avenue Montaigne, in the 8th arrondissement near the Champs-Elysees, has overtaken Avenue George V as Paris’ most expensive street. The avenue also has some of the most exclusive shops in the city.

Prices of luxury real estate in Paris tend to be less volatile than their counterparts in London, not being based almost exclusively on financial bonuses and foreign buyers avoiding taxes, and Paris is host to a considerably smaller foreign population than London. Nonetheless, prices for high-end properties in this triangle have continued to outstrip the base market by some margin.

Paris is also a little different from other cities in that the mayor of Paris is only responsible for the city center, and just minutes away from the city center, in the Ile de France, are a number of other suburbs, each one governed by it’s own mayor. 1,281 of them to be precise. This leads to some widely differing approaches to development, and subsequently the types of luxury property available, with what could only be considered “country mansions,” within a few minutes of the city center.

Plans are afoot to combine these out-lying suburbs with the city proper into one, “Paris Metropole,” but there is considerable opposition, especially from the most expensive suburbs such as Neuilly, who fear their tax revenues being used in the less salubrious areas.

Luxury real estate in Hong Kong

Photo Credit – Trey Ratcliff @ stuck in customs.

Like many luxury real estate markets, Hong Kong’s is driven by financial markets, the fact that there is a finite amount of space and, some would say, pure optimism. Record prices were set for properties in Hong Kong (and other luxury markets) throughout 2007, but in Hong Kong’s case, prices tend to fluctuate more wildly, based on financial booms and busts that come thick and fast thanks to almost no regulations in the market place. Hong Kong has been ranked as “the most free economy in the world,” for 14 years in a row, by the Index of Economic Freedom.

The most desirable areas include “The Peaks,” and the up-scale “Mid-level,” district. 2007 saw a record price per square foot not only in Hong Kong, but Asia in Branksome Crest Towers, over looking Victoria Harbor.

Luxury Property in Moscow

Moscow very quickly joined the ranks of the most expensive cities in the world thanks to the global financial and commodity booms of the early 2000s, with the luxury property market booming, as Moscow became home to more billionaires than any other city in the world (74).

In Moscow’s case, the luxury home market is driven by commodities rather than the financial markets, and the number of independent billionaires dropped sharply during 2008/9 as the economy contracted and the Russian government was forced to bailout many industries, taking preferred stocks to prevent foreign banks from becoming major shareholders.

One of the most famous areas of Moscow, the Rublevo-Uspenskoye highway is home to many of Russia’s political and business elite, with luxurious property to rival anything in the world and prices to match.

Real estate within a short distance from or overlooking the iconic landmarks of the communist era are also much in demand, and an apartment close to the Kremlin set a new price record in 2008. The “Golden Mile,” claims the largest volume of luxurious housing and includes Ostozhenka, Soymonovsky Lane, Prechistenskaya Embankment and Khilkov Lane.

Although there are a number of smaller suburbs being created around the new administrative centers such as Krasnogorsk, Mytischi and Khimi, as Moscow expands and absorbs out-lying towns and villages, and the definition of what constitutes luxury property in Moscow is changing fast. One of the previous defining factors was the amount of apartments in a block; with an increasing need for economies of scale, larger blocks are becoming acceptable.

What defines “Luxury real estate”?

Price

For the purpose of providing market research on a local level, The Institute of Luxury Home Marketing defines the luxury real estate market as “the top of the market,” and uses data collected from the top ten zip codes in a given metro area with a median price in excess of $500,000 as the bench mark for their Luxury Market Report.

Clearly, price comparison is one of the defining factors, but the term, “luxury,” is an extremely subjective word, and one that has perhaps been over-used in the real estate market during the boom years of between 1995 and 2008 along with many other consumer markets. Overused to to the point where there has come a need to use words such as ultra-luxury and super-luxury to distinguish between true luxury and “mass luxury,” products. It is difficult to consider a condominium as being luxury when surrounded by thousands of similar constructions.

Location, location, location

Location is another key factor. Whether benefiting from a view over central Park or the Kremlin, or the luxury of being miles from the nearest neighbor, the location of a property or development sets the basis for determining prices and levels of luxury, but one almost universal factor is access to water. From the Cote D’Azur to Singapore to Miami, to Chicago’s lakefront, a waterfront home is almost certain to be considered luxury property. With a few exceptions in the UAE and Russia, the amount of waterfront luxury real estate is always going to be under-supplied and priced accordingly.

Physical proximity to financial centers is another defining criteria. Many of the luxury real estate markets in the world’s cities are driven by financial centers of power, be it banking or manufacturing. As globalization continues, these markets become more and more intertwined. If the 2008/9 financial crisis taught us anything, it is that, with the possible exception of a few tax havens, all the world’s real estate markets are connected.

Quality of construction is another defining factor. Many boutique developers use nothing but the highest quality interior fittings and craftsmen. The gap between mass produced and bespoke continues to grow, with only a select few able to pay a premium for the very best, and wait the necessary extra time.

The Future of Luxury Real Estate

There will always be a luxury real estate market, but I believe the definition will change over the coming years, with a return to what I would consider “True luxury.” True luxury real estate, such as the Penthouse of the Pierre hotel in New York, a private Island in the Caribbean, or the multi-million dollar estates in unique settings around the world is set apart from the recent boom years trend of attempting to provide “luxury for all.”

The so-called McMansions are, I suspect, a thing of the past. In a recent article covering the “luxury real estate of the future,” we featured a number of unrealistically ambitious luxury developments, ranging from a mile-high tower in Dubai, to a glass-walled monstrosity in Moscow. Sadly, or thankfully, depending on your perspective, every single one of those buildings has been canceled, as the credit crunch takes it’s toll. At the time of writing that article, I questioned the viability of these developments. Mainly because of their vast scale. I see a return to more realistic building practices, brought about by more realistic lending practices. If we choose to learn any lessons from the financial crisis that is.

Luxury real estate will always be exclusive, if not unique, un-attainable and exotic. To paraphrase a certain Judge, “I may not be able to define it, but I know it when I see it.”

Resources and credits

The Institute of Luxury Home Marketing
Luxury Real Estate of the Future