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Friday, March 22, 2013

The World's Most Expensive Cities For Luxury Real Estate - Forbes

Morgan Brennan

Morgan Brennan, Forbes Staff

I write about real estate markets, outrageous homes and cities.

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3/22/2013 @ 8:09AM |1,441 views

The World's Most Expensive Cities For Luxury Real Estate

Billionaires have been on a real estate buying spree. Stateside, they’ve broken records on huge home purchases in every major housing market from Woodside to Malibu to Aspen to Chicago to Miami to New York. And internationally, massive sales in London, Singapore and Hong Kong have garnered worldwide attention.

“Global billionaire activity in world real estate markets has been so intense over the last seven years that it has led to a doubling of property values in this sector,” says Savills, a global real estate firm, in its annual World Cities Review report. The report found that major cities’ super luxury housing markets, referred to as ‘billionaire markets’, have grown at a much faster clip than mainstream markets of the same cities. The largest value increases have been clocked in China and Asia, thanks to the emergence of new wealthy classes and rising commodity prices.

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The city peddling the most expensive luxury real estate on the planet is Hong Kong.  Luxury housing on the Chinese island territory averaged £7,200 per square foot, or nearly $11,000 per square foot, in 2012. The average property size of a local “billionaire property”  on the island is 5,200 square feet, making the average luxury home valued at more than $57 million. The record for the city’s most expensive deal is held by a house on Deep Water Bay Road that fetched £8,200 (or about $13,000 at the time of sale) per square foot  in 2011.

The second priciest place for high-end homes is actually another Asian city: Tokyo. Average home size in Japan‘s capital city is an expansive 16,000 square feet, for an average £5,000 (or $7,600) per square foot. In other words an opulent mansion-sized home in Tokyo totes a market value of $121.6 million.

London, where a terraced house recently traded for close to $120 million, ranked third on Savills’ list, with an average price per square foot of  £3,500 (or about $5,300). The average billionaire abode, averaging 7,900 square feet, costs $42 million.

Home prices have ballooned 107% in London’s ultra-prime market since 2005, despite the global economic downturn. In general, though, price appreciation has been the most dramatic in emerging markets like Singapore and Mumbai, where prices have surged 232% and 176% respectively since 2005.  Their dramatic upticks are due in large part to the fact that both grew from relatively low base values.

Interestingly, New York City’s super luxury market, despite large ticket purchases like Ekaterina Rybolovleva’s $88 million 15 Central Park West penthouse and Steve Wynn’s $70 million Ritz Carlton penthouse, only ranked 6th on Savills list, behind Paris (No. 4) and Moscow (No. 5). Average price per square foot in the Big Apple was £2,700 (or about $4,100) in 2012. Still, that’s 47% higher than the sales prices commanded during the 2005  heights of the U.S. housing bubble.

“Billionaire activity has been concentrated on high-end urban centers rather than leisure properties in the surrounding countryside or regional sunbelts,” says Yolande Barnes, head of world research at Savills. ”This reflects a global preference for urban locations as these billionaires need to be located in cities where they can do business.”

Despite last year’s robust billionaire buying activity — or rather, because of it –Savills believes the world’s most expensive markets could experience a slowdown in sales this year, since ultra wealthy home buyers have “nearly fully invested in key cities”. It means the frenzied sales activity that has invaded so-called safe-haven cities like New York, London and Hong Kong could begin shifting to new locations.

Another factor that will affect billionaire sales: governmental policies geared targeting the ultra wealthy. Hong Kong, for example, has introduced home loan curbs and higher stamp duties for foreign buyers. In France lofty tax hikes have already been curbing high-end activity and suppressing prices, according to Savills. Prices in Paris ended 2012 down 8%, while prices in the French Riviera were down 10%.

Investment motivations are changing as well. Rather than simply buy a pied-a-terre in an enviable locale by which to park money as a long-term investment, more wealthy buyers are snapping up properties that they can rent out as income-producing assets. Stateside, brokers have been catering to this trend since last year, with South Americans becoming landlords in Miami and Asians becoming landlords in New York.

The luxury firm also notes that the profile of foreign buyer may change as well, with more buying harking from Malaysia, Indonesia and the Philippines rather than China, India and Singapore.

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The World's Most Expensive Cities For Luxury Real Estate - Forbes

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