Written by PJ Wade
You may not be in the market for the same real estate that billionaires purchase, but you can think like the super-rich when you search out your best property buy. Doesn’t it make sense to follow those who are a financial step ahead of you instead of following popular media and industry-driven fads?
Having more money to spend does broaden the range of choices, but the same real estate issues you struggle with challenge billionaires — aka ultra-high-net-worth individuals or UHNWIs as they are fondly referred to by those who sell to them.
Search through UHNWI resources like The Wealth Report 2015 and question real estate professionals who specialize in UHNWI clients, and you’ll pick up surprisingly-practical ideas on how to visualize real estate as more than a place to house stainless-steel appliances and marble counters.
Knight Frank, a UK-based independent global property consultancy, launched the ninth edition of The Wealth Report 2015to share results of tracking the growing super-rich population in 108 cities across 97 countries.
In 2014, approximately 15 people a day joined the ranks of the ultra-wealthy, or those with a net worth of more than US$30 million. This growth is expected to continue, with the global population of UHNWIs predicted to climb by 34% over the coming decade to a total of almost 231,000. The US has the highest population of UHNWI and is forecast to hold this ranking: In 2014, there were 40,581 UHNWI in the US; by 2024, there will be an estimated 25% increase to 50,767 UHNWI.
Here’s 6 UHNWI Buyer Trends that May Apply to Your Best Buy:
# 1. Location Makes Money
Luxury markets tend to outperform mainstream counterparts. Popular locations are the best investment because even when markets take a dip, these locations rebound more quickly and may keep rising through a downturn.
# 2. Neighborhoods Improve With Interest
Steady UHNWI demand on preferred locations will lead to expansion of these areas into abutting neighborhoods. Older areas (read “character”) with large lots and site potential (especially views) will catch the eye of early adopter UHNWI buyers and developers. Purchasing in an upcoming area can mean greater returns on investment than multiple-offering your way into an already price-inflated location.
# 3. More Is Better
Purchasing more real estate to build a portfolio is common practice for billionaires. Often this practice requires more nerve and savvy than cash since leveraging, or borrowing against what is owned, to finance other purchases is preferred over arranging a new mortgage against a purchase. Buying outside the residence area, state, or country is increasingly important to UHNWI. Diversification is a basic principle of investing and also applies to real estate. Reportedly, more than a quarter of UHNWIs are thinking of buying a new house in 2015. In certain regions of the world, up to a third of the super-rich are thinking of changing their home or country of residence.
# 4. Employee Availability May Limit
“After death, debt and divorce, staffing problems are one of the main reasons behind the sale of country houses. Recruitment, retention and management [of employees] replace the work of running the home and property. Staff, full or part time, may reduce physical workload but they introduce other duties for property owners. Finding staff in more remote areas can be a significant challenge.” This concern can be true of the experienced team required to efficiently operate a condominium complex or the medical community necessary to enhance lifestyle health issues. Look beyond real estate to the community that must support your chosen lifestyle.
#5. Safety: Economic and Regulatory Stability
With unrest in the world, on many levels, UHNWI search for safety. This includes markets with liquidity &emdash; major cities with in-demand neighborhoods. As investors, UHNWIs are searching beyond prime or trophy offices and retail space to non-core locations as a safe haven for their funds. Other studies have revealed a pattern of property investment outside their own country, for instance in Ireland and Spain. Private investment into business-critical opportunities like health care and student accommodation are also on the rise.
#6. In Light of Future Trends
When buying real estate, it’s not just what is going on now or what went on last year. What’s coming next is an important consideration. According to The Wealth Report 2015, city markets out-performed sun and ski markets. Two significant macro trends will have a profound impact on prime property markets:
- The growing globalization of wealth means there are more UHNWI from more countries looking for luxury homes in increasingly diverse locations. Increased demand is driving prices up. In 2014, New York City experienced the largest growth in prime residential prices — +18.8% — with Aspen a close second at +16.0%.
- “There is burgeoning government scrutiny of wealth and levels of protection.” Where government policy is intent on cooling price increases through increased taxation and mortgage-market interventions, UHNWI may hold back, which can provide more opportunity for others locally. For instance, The Report states London’s purchase tax for properties over ₤2 million has slowed the rate of growth by 5.2%.