May 11, 2017 / Market Insights

Testing the Truisms of Luxury Real Estate

Does 'location, location, location' still determine value? Are resort markets risky in uncertain times? We put residential real estate 'truisms' to the test...

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In 2016, the worldwide ultra-affluent population grew by 4.2 % and their wealth expanded by 2.5 % ; the global economy shifted upwards, and equities markets reached record highs—all signs that in normal years would point towards a positive performance in prime property markets.

Though there were pockets of outstanding results and the first quarter of 2017 is already showing signs of an uptick, the global luxury real estate market experienced a subdued 2016 after several years of frenzied sales growth and dramatic price rises in isolated luxury pockets during the economic recovery.

In aggregate, of the 101 housing markets surveyed as part of our 2017 Luxury Defined research report into the international prime property sector, US$1 million+ home sales worldwide rose by 1 % year-on-year. This represents a sharp drop from the 8 % growth recorded the year prior, and is a far cry from the 16 % increase recorded in the post-recession boom in 2014.

 

Despite an overall flattening of the market, a closer look at individual market performances reveals an even more interesting tale. Much like the unexpected major international political outcomes of 2016, the most telling stories in the luxury residential sector are in the extremes. When comparing individual property markets, remarkable disparities were posted in sales performance, varying sharply from a staggering 90 % year-on-year increase in the number of luxury home sales in red-hot Toronto, to a cooling 35 % drop in central London.

Westminster, London Toronto, Canada

The story behind the world of luxury real estate becomes even more interesting when one examines the dynamics between inventory, sales activity, and sales prices. Of our 101 studied property markets, 54 % recorded an annual increase in luxury property prices, and 52 % noted increases in million-dollar-plus housing inventory levels in 2016.

Much like the unexpected major international political outcomes of 2016, the most telling stories in the luxury residential sector are in the extremes

It is clear that local and international trends impacting wealth movement, global financial factors, and geopolitical currents continued to be a driving force on prime international real estate values. However, it is hotly debated to that degree these trends influence the decisions of individual buyers and sellers and how heavily they are weighted beside more localized and traditional housing market dynamics.

As part of this year's Luxury Defined report, we look at some of the historical “truisms” of luxury real estate under the lens of current vacillating and polarized markets to see if these adages still hold true. See our findings by downloading the complete report or by exploring the highlights below:

  1. When Uncertainty Prevails, Luxury Housing Purchases Soften (True)
  2. Uncertainty Undercuts Discretionary Second-Home Spending (True)
  3. Luxury Real Estate Follows Trends in Luxury Asset Classes, Not the General Housing Market (True)
  4. Cash is Always King in Luxury Real Estate (False)
  5. Will My Luxury Home Always Sell for More Than My Neighbor's? (False)
  6. 'Location, Location, Location' Is Still the Most Important Factor in Determining a Home's Value?  (True)

Download Our Exclusive Report on the Luxury Property Market

Topics

Monique Sofo
Christie's International Real Estate

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