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Luxury Property Investment – Analysing the Post-Pandemic Landscape

Luxury Property Investment - Analysing the Post-Pandemic Landscape 1

By Paul Rothschild, Chief Advisor to Platinum Luxury Design & Development PLDD and Black Rock Asset Services Ltd.

The year 2020 will be remembered as a watershed moment for this generation. Pre-conceived notions of where we should work and how we should live were upended.

And while the idea of a traditional workplace underwent a revolution, our homes adapted to define the era of COVID-19. All of the changes, losses and challenges throughout the pandemic hasn’t been enough to stifle the luxury property investment market.

Low interest rates create ideal environment for luxury property investment 

Savvy investors are ready to jump on the opportunities available from the resilient and still thriving luxury property market around the world. Boosted by low interest rates and economies finally set to recover from the pandemic induced lows, the outlook is good.

Obviously, city centre luxury properties took a hit in 2020. It’s been impossible to ignore the toll COVID-19 has taken on city centres. During the height of lockdown, very few offices had any staff in at all. And those that did relied on skeleton staff, with the majority of employees working from home.

This meant that a whole swathe of office-workers had to quickly adapt to remote working. And in turn, this increased interest in bigger properties, further away from the city centres with space, privacy and safety.

In the US, there is a renewed interest in rural states like Montana and Wyoming, for example. However, in the US and other major luxury property hotspots in Europe and the UK, most buyers turned to the already well-established luxury markets.

Popular luxury property areas in the US right now include: 

  • Ski resorts like Aspen and Vail. Sales volume for the former Rocky Mountain resort reached $1.5 billion by the start of Q4 2020.
  • South Florida coast regions like Palm Beach with its combination of low property taxes and zero state income tax. Miami and Naples remain popular, and sales in Palm Beach increased by 120% last year.
  • East Coast luxury refuges like the Hamptons and Nantucket are more popular than they have ever been, giving as they do, a refuge from Manhattan.
  • Sonoma, Carmel and Monterey are absorbing a rush of West Coast investors.
  • Silicon Valley people looking for space and privacy during the pandemic are heading to Texas, boosting high-end property interest in the most affluent areas such as Austin, Fort Worth and Dallas.

In Europe, we’re seeing a similar pattern for wealthy investors. There is a marked increase in interest for properties in the richest rural regions, with loads of space and privacy from the hordes of city centre folk. So, this includes regions like Tuscany in Italy, the French Riviera and Alpine Ski resorts.

Major city centre properties are winning back high net worth individuals 

While last year became all about escaping lockdown in the city, 2021 shows that the move from luxury real estate favourites like London and New York City was only a pause.

Both London and NYC remain hugely interesting to the increasing number of high-net-worth individuals (HNWI) worth at least $50 million or more. Right now, there are almost 90,000 in the US and more than 22,400 HNWI in China. They are generally looking for investment opportunities of at least $10 million per property.

I think it’s likely that the London market specifically will return to the heights it reached in 2014, but this will obviously take time. The stamp duty holiday is now easing and will be over by September, according to the Government. This will slow it down more, but nevertheless, people are returning to the city centres and wealthy investors are tentatively reentering the London market.

Investors should look for hotspots with favourable tax benefits

As countries around the world continue to get on top of their vaccination rollouts, and slowly emerge from the worst of the pandemic, investors are facing uncertainty surrounding tax.

Governments are understandably looking for ways to recoup the billions lost during the pandemic. This will inevitably include adjusting property taxes in some way.

For example, in Canada and the UK, taxes are rising for non-resident investors and buyers and on holiday and second homes. In the US, President Biden has pledged to increase taxes on HNWIs and anyone with more than $400,000 each year.

However, investors who are willing to look further afield, there are a number of places that are offering either a total suspension of stamp duty or other forms of tax relief. For example, Victoria and New South Wales in Australia.

Fast-track to residency with Golden Visa initiatives

Investment opportunities that offer fast-track residency are also out there for HNWI. So-called Golden Visa initiatives are up and running in a number of Caribbean Island countries, including the Turks and Caicos, the Bahamas, Antigua and Barbuda, Saint Lucia, Saint Kitts and Barbados.

There is the added bonus of many of these islands having relatively low rates of COVID-19, offering an immediate solution for those who want to escape to a luxury property.

For investors looking for a simple and smooth way into EU residency, Golden Visa programmes are also available for Portugal and Spain and in Southeast Asia in Thailand and Singapore.

New Zealand is one of the fastest-growing luxury property hotspots

Buyers and investors are also stepping up their search for luxury properties in beautiful, natural surroundings. This is very much part of the post-pandemic outlook on what matters most and areas of outstanding natural beauty are trumping the desire to be located near to major transport hubs or financial centres right now.

In other words, ROI now means more space, far more natural surroundings, more privacy and the feeling of being able to breathe. One of the most popular areas right now is, perhaps unsurprisingly given the country’s success in dealing with COVID-19, is Auckland in New Zealand, luxury property prices increased by up to 17% throughout 2020.

Tel Aviv is also proving popular with wealthy investors, and currently ranks as one of the most expensive cities in the world. This is partly down to Israel’s support of tech start-ups fuelling the economy, with the beauty of the seafront region dubbed the Golden Kilometre offering the natural beauty by the ocean that buyers are looking for.

How will the luxury property market play out post-COVID?

Investors will continue to choose luxury real estate with health concerns in mind as we continue to live out the next stages of the pandemic. While we are not quite in a post-pandemic landscape just yet, the trends are moving that way and COVID-19 will continue to direct buyer’s thinking.

This does depend on the luxury real estate property inventory holding out to match demand, of course. It’s rising for luxury and exclusive properties as we move through 2021, even as the vaccine programmes continue to roll out in much of the developed world.

For those who have been working and living in the same luxury space, it’s unlikely that heading back to the office will be desirable. Flexibility in work patterns will continue, and this will also continue to direct buyer’s ideal property choices. A property that is set up for work, play and home life is now the draw for many, over and above city centre residential properties.

So, we will see wealthy investors remaining in their second homes or making their properties co-primary at least through the rest of this year and potentially further into the future.

However, there is always a warning sign to heed buried in such a buoyant market!

The combination of low interest rates, easy access mortgages and stock market gains create an environment where over-extending budgets becomes the norm.

There is a general downplaying of financial risks, which always must be taken into account by investors and prospective buyers.

When COVID-19 is finally a dim and distant memory, luxury city centre property will once again become the focus for wealthy investors. This is always where culture thrives and careers are advanced, and I think this will certainly happen, albeit the type of property requirements from investors will differ, but when it does, high-end city centre properties will once again be in high demand.

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