Global Evolution: What’s Changed In Luxury Real Estate Since The 2008 Recession

In the 10 years since the recession, residential real estate, especially in the realm of higher-priced properties, has morphed into a worldwide enterprise.

“There is no question; people have more of a global mindset. They are looking for real estate in places they love,” says Stephanie Anton, president, Luxury Portfolio International, which several years ago adopted the tagline, “We’re global. We’re local.” The phrase aptly characterizes the status of luxury today.

“The saying goes that all real estate is local, but that does not mean that all buyers are,” said NAR President Elizabeth Mendenhall, CEO of RE/MAX Boone Realty in Columbia, Missouri.

Congeliano, Italy

Photo courtesy of Atlante Properties Luxury Portfolio International®

For the industry, the ramifications of globalization extend beyond merely who buys what, where. “Historically, real estate market dynamics were considered a local phenomenon. In the luxury sector, this is no longer the case, as the value drivers for prime property in one corner of the globe increasingly originate from a completely different region of the world,” explained Christie’s International Real Estate in its 2018 report Luxury Defined, noting this trend is most evident in secondary markets — second home and resort lifestyle destinations. In 2017, sales of resort and vacation homes grew by 19 percent compared to 7 percent in 2016.

Buying property outside of one’s home country is nothing new, but, until the 1980s, sales across borders were generally limited to resort enclaves or a pied à terre in Paris, London or New York, along with the occasional trophy property.

Today, rather than a specific location, high-end buyers are likely to search for a particular property type. “Buyers these days are looking in multiple markets. They’re not as geographically contained. So, if they’re looking for a ski chalet, they could be looking at a number of different countries and throughout the Rocky Mountains in the United States,” shares Laura Brady, president and founder of Concierge Auctions, who says her company initially saw indications of this trend with ranch properties, which are very unique. “Clients don’t care specifically which market they’re in; instead, they want the right property.” Founded 10 years ago, Concierge Auctions has a team in Europe and activity in 18 countries.

Perhaps it’s geography, but Americans typically first look within their own borders. On the other hand, Bob Hurwitz, founder and CEO of the Hurwitz James Company, says, “Wealthy foreign buyers are far more likely to be open minded about locations outside their country as their first choice, in my experience. It’s not difficult to understand if you travel a great deal. In many of the countries I visit on business, you will not find many Americans, but you will meet a wide variety of citizens of other countries.”

More than property and search preferences drive the shift toward a global perspective. “There are several factors contributing to the increased globalization of luxury real estate,” shares Anthony Hitt, president and CEO, Engel & Völkers Americas, who cites the rise of digital, social and mobile technologies. “Real estate is not immune to the changing patterns of consumption enabled by technology; clients have more visibility, and therefore interest, into international homes and listings.”

Experts also point to an increasingly global economy, changing work/life balance and how commonplace travel, for both work and pleasure, has become. Craig Hogan, vice president of luxury, Coldwell Banker Real Estate, plans to exchange his primary residence in Chicago for two small condos, one on Michigan Avenue and another in Puerto Vallarta. “Fifteen years ago, my partner and I never would have considered that. Today, we are mobile. Our careers take us all over the world.”

Falmouth, Massachussetts

Photo courtesy of Robert Paul Properties/Luxury Portfolio International®

“With the world that we live in now, it’s less important that you live where your business is or where you do business. So, you’ve got a lot of people just making lifestyle choices. They’re just picking the city that they enjoy the most, and they’re moving there,” shares Mike Leipart, managing partner of The Agency Development Group in Beverly Hills.

Post-Recession Roots

The foundation for today’s international dynamic lies in the early post-recession years. In 2007 and 2008, prices on average fell by approximately 17 percent across the globe. By 2009, 73 percent of the prime property locations surveyed by Knight Frank had experienced declines, and savvy buyers scoured high-end markets worldwide for bargains. At the same time, a growing uptick in wealth and wealth creation brought more buyers to the international market.

Wealth creation continues at the post recession pace, with the number of millionaires worldwide tallying at 22.3 million, according to Wealth X. Those with a net worth between $1 million and $5 million hold 40 percent of the global millionaire wealth, while the remainder is held by the ultra wealthy, those with a net worth in excess of $30 million (Knight Frank pegs the benchmark for ultra wealth at $50 million). From 2012 to 2017, Knight Frank says the number of ultra-high-net-worth (UHNW)  individuals increased by 18 percent, followed by another 10 percent gain in 2017.

Coldwell Banker Global Luxury estimates 32 million millionaires reside in the U.S. The U.S. remained the dominant nation for wealth in 2017, both among millionaires and the ultra-wealthy, according to Wealth X, although growth of this population and net worth in the U.S. was the lowest among the seven top-ranked countries. Japan was second with an 11-percent rise in the UHNW population, followed by China, Germany, the U.K. and Hong Kong.

Mexico

Photo courtesy of REMexico Real Estate/Luxury Portfolio International®

Globally, wealth in 2017 increased in all regions, with both Latin America and Europe showing a resurgence over 2016. “The confidence of foreign buyers is back,” says David Scheffler, president, Engel & Völkers France. “The Parisian luxury market has always attracted wealthy Middle Eastern buyers and continues to do so. Qatari, Kuwaiti, Saudi and Omani clients are looking for outstanding apartments and townhouses, the so called hôtel particulier. The trend to buy luxury properties in Paris is not just reserved for the ultra-wealthy, but applies instead to a wider range of affluent buyers. Some might look for a small 50- or 60-square-meter pied-à-terre, while others look for ‘representative’ apartments in the Haussmann style, up to 12 million euro.”

Over the course of the last 8 to 10 years, cross-boarder buying surged, ramped back, and picked up again. In 2016, global sales of luxury properties retrenched, partially in response to Brexit, government restrictions on wealth and the transfer of money. Markets bounced back in 2017, with sales of $1 million-plus properties up substantially.

Christie’s reports an 11-percent increase in sales, the best annual increase since 2014. Luxury properties sold in 190 days, indicating more realistic pricing in some markets and lack of inventory in others. Exceptions included New York and Miami, which saw an influx of new inventory and a shift in buyer interest. In Toronto and Vancouver, newly introduced cooling measures from the government slowed sales.

“I don’t think there is any indication that they [international buyers] are NOT looking in Manhattan. The indication is that they are either interested in the properties at lower numbers or they prefer to wait the market out and hope to buy when things are at a bottom (I have seen this many times before. It never works!). Nobody is moving to Detroit because they can’t find what they want in New York City,” shares Frederick Warburg Peters, CEO of Warburg Realty. “Russians and Europeans are far scarcer than they were in 2010 or 2011.”

Still, both for high-net-worth and ultra-high-net-worth individuals, New York follows Hong Kong as the best city for prime properties.  

Nassau, Bahamas

Photo courtesy of Bahamas Realty/Luxury Portfolio International®

Toronto, Canada

Photo courtesy of Harvey Kalles/Luxury Portfolio International®

Following the recession, a growing body of research focused on wealth and global cities publish multiple rankings. A city’s position may shift slightly, depending on the research, but all reports include the same top locations for luxury properties. Hong Kong places ahead of New York in Christie’s 2017 index, with New York moving up to second, followed by London, Singapore, San Francisco, Los Angeles, Sydney, Paris, Toronto and Vancouver.

Lower prices pushed Miami just out of the top 10, but the city remains a good example of the change international activity can spark. “The international market has arguably impacted Miami as much or more than any other U.S. market. The influx of capital from Europe, South America, Russia, China and Asia has permanently changed our community. The easiest example is by simply looking at our booming skyline,” says Irving Padron, president and managing broker, Engel & Völkers, Miami.

The highest-priced sale globally was $360 million in Hong Kong, and despite government efforts to curb rising prices, there are no indications of slowing demand for luxury residences here. Also, adding to this market, according to Anton, is continued interest from mainland Chinese buyers.

Numbers Tell the Story

Rather than sales and prices, the best indication of just how global real estate has become can be seen in the expansion of major brands, affiliate groups, and even boutique firms worldwide. “All brands are connected globally,” Hogan observes, adding that even independents need some kind of a global connection. “It’s part of the dynamic,” he says.

Coldwell Banker is in 49 countries. Sotheby’s International Realty network has offices in 72 countries and territories. Luxury Portfolio International and Leading Real Estate Companies of the World lists properties in over 70 countries. Who’s Who in Luxury Real Estate’s network includes 130,000 professionals in over 70 countries. Berkshire Hathaway HomeServices recently opened franchises in Germany and in London. Bob Hurwitz had already positioned his boutique firm as an international player before the recession. Today, he has offices in Los Angeles, San Francisco, New York, London, Shanghai and Singapore.   

A global orientation can also be seen in members of the Institute for Luxury Home Marketing. There is “an increased focus and intentional approach as they target international buyers through affiliations with brands, networks and associations,” says general manager Diane Hartley. “In fact,” she says, “we have members in many countries outside of North America who are building relationships and sharing business with our members in the U.S. and Canada.”

Whistler, Canada

Photo courtesy of The Whistler Real Estate Co./Luxury Portfolio International

Firms based in Europe also continue to increase their footprint. Founded as a boutique firm in Hamburg, Germany, Engel & Völkers is now in 800 locations in Europe, Asia and the Americas, establishing its first offices in the U.S. in 2007. “We have experienced firsthand the globalization of luxury real estate,” says Hitt.

“For luxury and coastal markets, real estate has absolutely become more global,” shares Leipart. Like a growing number of independent firms, The Agency partners with an international real estate advisory company, Savills, which allows them to sell through 700 offices around the world. Still, he adds, “we are focused on international, kind of connecting the dots around the world as opposed to other cities in the U.S.”

In the luxury world, L.A.’s star continues to rise, and the city in recent years has figured into lists for top global markets. According to the National Association of Realtors, Florida, California and Texas remain the top three destinations for purchases from foreign buyers, followed by Arizona and New York. Still, just under half of all residential transactions for foreign buyers took place in other states. Among buyers, China, Canada, India, Mexico and the United Kingdom account for the most purchases.  

Also, Hogan points out, international buyers in the U.S. aren’t always in luxury markets. For example, Asians love to buy real estate close to a university. Another group looks for locations with smaller downtowns. Still others want a large home with a big yard near a lake or river, something hard to find in their home country.

As Much As Things Change

Even though foreign buying in the U.S. slowed in 2017 compared to prior years and to overall activity worldwide, international buyers still have their sights on the U.S. “It’s all about consumer confidence. As long as people feel that the U.S. economy is in good shape and it’s going in the right direction, they’ll buy real estate,” says Brian Losh, chairman of Who’s Who in Luxury Real Estate.

Connections to local markets remain essential.  “I will say a lot of it still happens in a very traditional way. People are either coming to L.A. a lot, either they have a child in school here, or they love the area and they decide to buy a home, and they do that through a local Realtor, regardless of where they come from,” observes Leipart.

Crescent Communities’ acquired businesses will remain headquartered in Charlotte, North Carolina, under its existing management team.

Crescent Communities, LLC, a residential and commercial real estate company, and Sumitomo Forestry America, Inc., a comprehensive housing and wood products corporation and a wholly-owned subsidiary of Sumitomo Forestry Co., Ltd., announced the signing of a definitive agreement under which Crescent Communities’ three key businesses will be acquired by Sumitomo. The transaction is expected to close by the end of June.
“We are excited to partner with Sumitomo as their investment will continue Crescent Communities’ growth strategy and enhance our capital structure,” says Todd Mansfield, the chief executive officer of Crescent Communities. “This acquisition is evidence of Sumitomo’s favorable view of our multi-product platform and geographic footprint in high growth markets. We look forward to leveraging their extensive real estate expertise, financial strength and global network to support our ongoing commitment to unleash value for all stakeholders.”
 

Masons Bend’s Amenity Center

“We have been pursuing further expansion of our U.S. real estate business and the acquisition of Crescent Communities is a perfect fit with our investment philosophy,” says Atsushi Iwasaki, the president of Sumitomo Forestry America, Inc. “With favorable demographics, including outsized employment growth, Crescent Communities’ markets are well positioned to support healthy long-term real estate fundamentals.
The acquired business will take the Crescent Communities’ name and remain headquartered in Charlotte, North Carolina, under the existing management team led by Todd Mansfield, Chief Executive Officer. Palmetto Bluff, the acclaimed 20,000-acre resort community with a Montage branded hotel located in Bluffton, South Carolina, will be retained by Crescent Communities’ existing owners, with the local management team continuing in their roles and David O’Donoghue continuing to serve as president.

The new light rail by NOVEL NoDa and NOVEL at Providence Farm

Sumitomo Forestry America, Inc. will acquire Crescent Communities’ multifamily, single family and commercial and mixed use businesses. Crescent Communities’ multifamily business, operating under the “NOVEL by Crescent Communities” brand, includes 20 communities in development and/or operations, totaling approximately 6,400 units. The company’s Fielding Homes single family home building business includes over 1,700 single family lots across 6 communities in Charlotte and Raleigh-Durham, North Carolina.
The commercial and mixed use business development portfolio includes nearly 1.5 million square feet of assets, including the recently announced 742,000 square foot Ally Charlotte Center project in Charlotte, North Carolina. In addition, Sumitomo Forestry America, Inc. is also acquiring Crescent Communities’ development pipeline of nearly $2 billion of real estate projects, including 5,500 multifamily units, 2,200 single family units and 2.5 million square feet of office and industrial assets.

Masons Bend

Photos courtesy of Crescent Communities

Inventory constraints that have fueled a sharp rise in home prices and made it difficult for buyers to gain a foothold in the market will begin to ease in the new year as part of broad and continued market improvements.
The easing of the inventory shortage, which is expected to result in more manageable increases in home prices and a modest acceleration of home sales, is being predicted based on developments first detected by realtor.com® late this summer. The annual forecast, which is among the industry’s bellwethers in tracking and analyzing major trends in the housing market, also foresees an increase in millennial mortgages and strong sales growth in Southern markets. The wildcard in 2018 will be the impact of tax reform legislation currently being debated in Congress.
The new year will set the stage for a significant inflection point in the housing shortage. Inventory increases will be felt in higher priced segments after spring home buying season, which we expect to take hold and begin to provide relief for buyers and drive sales growth in 2019 and beyond.

Realtor.com® Forecast for Key Housing Indicators

Housing Indicator
Home price appreciation
Mortgage rate
Existing home sales
Housing starts
New home sales
Home ownership rate

Realtor.com® 2018 Forecast
3.2% increase, enabling a sales pickup
Average 4.6% throughout the year and reach 5.0% (30 year fixed) by the end
2.5% growth, low inventory trend starts to reverse
3% growth in home starts; 7% growth in single family home starts
Increase 7%
Stabilize at 63.9% after bottom in Q2-2016

For the full story — which includes Five Housing Trends for 2018 and the Top 100 Largest U.S. Metros Ranked by Forecasted 2018 Sales and Price Growth — head to Realtor.com

Images from Realtor.com

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