Where the well-off are buying property

The super-rich continue to invest in global property hotspots, but they are keeping an eye on plans for higher UK taxes

In the last six years, foreign money has ploughed into London’s most expensive homes as investors sought a safe haven for their wealth amid the eurozone crisis, while others simply wanted a trophy asset in the capital.

This pushed house price growth up to unsustainable levels, touching 20 per cent at one point and fuelling concerns among many that overseas buyers were blocking ordinary Londoners out of the capital’s property market.

Ed Miliband, leader of the Labour Party, jumped on this growing mood and pledged to stop developers advertising properties overseas before they are advertised in the UK if he wins the forthcoming general election in May.

However, perhaps most damaging to demand for these properties is the fact that he also plans to slap a mansion tax on homes worth more than £2 million. This combined with the Chancellor George Osborne’s recent overhaul of stamp duty system, which means those at the upper end of the scale pay more, has significantly cooled demand and resulted in slower price growth.

Lucian Cook, director of research at Savills, the property group, says: “It should be remembered that wealthy overseas investors operate in a particularly competitive global environment. A mansion tax would send a strong message that such investors in the UK would be facing a punitive and uncertain tax regime – a message which poses perhaps the greatest risk of all.”

As potential investors watch the UK like hawks in the run-up to the election to see if it is in fact the best place to put their money into property, they will also no doubt be assessing other cities around the world for their potential.

SAN FRANCISCO AND LA

Other hotspots for the super-rich include New York, Hong Kong, Los Angeles and San Francisco, with the former at the top of the list, according to the Wealth-X and Sotheby’s International Realty Global Luxury Residential Real Estate Report. London is currently in second place.

“The world’s ultra-high-net-worth population is growing, and real estate plays the unique role of an investment opportunity and a need. Those that work hard want a haven they can retreat to so they can savour their free time,” says Philip A. White Jr, chief executive of Sotheby’s International Realty.

“They also lead global lives and have varied interests that take them to far-reaching places. Many will purchase property in locations they fall in love with during their travels or to meet the demands of their lifestyles.”

The report found that, in terms of countries, the United States remains the leader of the pack, not only because it has the largest ultra-high-net-worth population in the world, but also because it is home to some of the world’s best universities, including Harvard, Princeton and Yale.

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New York City has the highest number of UHNWIs (Ultra High Net Worth Individuals) residents

For these families, who have $30 million or more in assets, the investment value of owning a property in the US is made even more attractive by the access it provides to educational opportunities.

Within the US, New York, in particular, continues to attract floods of wealthy investors, with an increasing number of Chinese property buyers looking to compete with locals and invest in the market.

“Historically low interest rates and the city’s established status as a global financial hub have fuelled investors’ confidence. Sellers continue to have faith in the market; a penthouse in the city, for example, recently listed for a record-breaking $130 million,” the report says.

London overtook Hong Kong in 2014 to be named as the city with the highest prime residential prices per square foot

In the Far East, house prices in Hong Kong, another global property hotspot, reached new record highs last year after demand was dampened by a sales tax in 2013, causing transactions to fall to a 17-year low. Sales are widely expected to have recovered by about 30 per cent last year.

However, this did not stop London overtaking Hong Kong in 2014 to be named as the city with the highest prime residential prices per square foot. According to CBRE, the global property consultancy, London prime residential prices increased by around 16 per cent last year and now stand at around £2,000 per square foot.

Looking at opportunities closer to home, investment agency Property Frontiers predicts 2015 could be the ideal time to pick up good-value property in the major eurozone cities, who have suffered a difficult few years.

Prices seem to have bottomed out in many places, and Property Frontiers singles out Barcelona and Dublin as two places to consider investing in. Price movements have begun to be positive in Barcelona, while Dublin has already begun to recover at the top end, but prices remain well down on their previous highs.

“As a result there could be good prospects over the medium term. For investors happy with exposure to the euro, both Barcelona and Dublin look like two of the best bets,” it says.

KAMPALA AND LUANDA

Looking further afield, Property Frontiers believes Africa offers the most interesting opportunities of any overseas destination during 2015 as armies of expatriates now seek out high-end accommodation in cities such as Kampala and Luanda. The investment agency argues that much of the risk in Africa is perceived rather than real and, for those who understand the area, there are “some very exciting property investment opportunities”.

Other so-called lifestyle areas where the super-rich can ski or sail are proving to be particularly popular. In its index of how property in 20 ski resorts around the world performed in the year to June, upmarket estate agent Knight Frank found that at 24.8 per cent, Queenstown in New Zealand recorded the strongest annual price growth. Aspen in the United States came in second place at just over 20 per cent.

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“For the world’s wealthy, a ski home is a key component of their global property portfolio, but increasingly it is being bought not just as a lifestyle acquisition but one that can provide an investment return as well,” says Kate Everett-Allen, a partner at Knight Frank, adding that a new ski chalet in Courchevel Village in the French Alps can produce a 6.7 per cent gross yield.

Overall, North America significantly outperformed Europe in the year to June, recording average price growth of 13.3 per cent compared with 1 per cent in Europe. However, average prices across the North American resorts remain 9.9 per cent below their 2008 peak, while the comparable figure for Europe is already 8.8 per cent above.

European buyers accounted for 61 per cent of all applicants, followed by Asian and Middle-Eastern buyers. Demand for ski homes is strengthening with Chinese, Indians and Indonesians among the top nationalities interested in ownership.

Knight Frank has also found that investors are snapping up lifestyle vineyards across the globe. Last year Sonoma County in the US recorded the strongest annual increase in vineyard prices, rising by 17.9 per cent, as Asian buyers are looking beyond Bordeaux to America, Italy, New Zealand and Australia.

It says vineyards are increasingly seen by the world’s wealthy as a means of broadening their property portfolio, while providing an opportunity to learn and explore a new industry or passion.

In Knight Frank’s experience, lifestyle vineyards are acquired by a mix of buyers. Some are purchased as an early-retirement project by wealthy individuals in their late-40s or early-50s, while others are used as holiday homes which are visited three or more times each year. In the latter case, the owner would hire a manager to oversee the day-to-day running of the estate, including both production and sales.

At 60 per cent, Tuscany in Italy currently attracts the largest proportion of international buyers with some areas, such as Chianti and Montalcino, seeing an even higher proportion. Mendoza in Argentina, which is home to a large number of US, Canadian and also European vineyard owners, is in second place with around 50 per cent of buyers originating from outside Argentina.