Global Luxury Market Snapshot

Leonard Steinberg, Chief Evangelist and former president of Compass, shared some interesting insights into luxury markets around the world. Too often, we stay focused only on our little corner of the world, but it’s always a good idea to occasionally take a step back and look at the big picture. Here’s what’s going on around the world—and why it’s happening.

LONDON: Home values in the city’s prime neighborhoods are 19% below their 2014 peak.
WHY? Tax changes on luxury properties have hit hard. Add in Brexit and an anti-money-laundering crackdown on cash from countries such as Russia and China, and demand for high-end homes has dried up. Even Ken Griffin who spent $122 million on a mansion near Buckingham Palace in January, paid almost 35% off the original price.

SYDNEY: Australian home prices have fallen more than 6% since their October 2017 peak. Sydney's prices are down about 12%, the worst slump in four decades.
WHY? Easy credit caused prices to go crazy, then policymakers stepped in with a series of cooling measures including a restriction on banks from issuing interest-only loans popular with speculators. Regulations designed to deter foreign buyers, such as higher sales taxes, have only made it worse for investors, with many pulling out of the market. Because interest rates are at record lows and the country’s economy is growing modestly, it’s hard to see the window for bargain shopping closing anytime soon.

DUBAI: Dubai home prices are down about 25% since their 2014 peak.
WHY? Overzealous developers in Dubai are responsible for the slump with a record 31,500 homes planned for this year, double the annual demand of the past 5 years, raising the risk that prices could fall further.

HONG KONG: Home prices are down almost 10% since August, and several forecasts expect another 10% fall in 2019. A 25% decline is possible in 2019 if the U.S.-China trade war worsens.
WHY? The Hong Kong currency is tied to the U.S. dollar, so borrowing costs have gone up as the US Fed has hiked rates. An upcoming vacancy tax designed to stop developers from hoarding empty apartments in the hopes that they fetch better prices later. Investors are already unloading empty units in anticipation.

NEW YORK: Sales of Manhattan properties priced at $5 million or more dropped around 22% last year from 2017, their steepest decline in a decade.
WHY? A post-recession building boom led to a glut of condos. The annual inventory of homes for sale rose 15.4% in 2018. Federal changes that limit deductions on property and state taxes and mortgages have encouraged people to flee to lower-tax states. More than 8% of New York state residents will face higher taxes for 2018, with 29% of the highest earners seeing a hike.

DUBLIN: Home pricing in Dublin’s most desirable districts, fell 2.8% last year, after 5 years of price growth following a 56% collapse citywide starting in 2008.
WHY? Ireland’s economy is closely tied with the U.K.’s, Brexit wobbliness is at least partly to blame for the falling prices. The weak pound is deterring wealthy U.K. buyers, and limits introduced in 2015 by the Irish Central Bank on the amounts that can be borrowed have also helped cool the market. First-time buyers, for example, now have to put down at least 10% of the price.

VANCOUVER: Home prices fell 4.5% in January from a year earlier, and they’re now 8% below their June 2018 peak. High-price districts are faring much worse; properties in West Vancouver, which had been attractive to overseas buyers, are down 14% from the previous year.
WHY? After prices surged about 63% from December 2013 to December 2018—putting owning a home beyond the reach of most locals— Vancouver’s market developed an unhealthy dependency on foreign cash. China’s clampdown on money fleeing the country and local measures in Canada, including a 20% foreign-buyers tax, have discouraged the overseas high-rollers. At the same time, the Canadian government’s new tighter mortgage rules have made it even harder for locals to afford homes.

Out of all of this we can collect some common themes:

  1. Cheap money causes over-building. Supply-demand.

  2. Developers focus building too much high end product, because its more profitable.

  3. Rising interest rates. As rates rise, buyers see prices come down. They wait and see thinking further rate hikes will cause further price declines.

  4. New taxes.

  5. Excessive pricing inflation.

  6. Too many speculators.

  7. Investing into escalation expectations rather than value creation.

  8. Political shifts and new policies/ideologies.

  9. Currency related issues.

  10. Sentiment.

Some under-valued luxury markets may not see the declines others are seeing, especially those that have very limited inventory or in areas that are expanding rapidly economically.