If you are wealthy, you have recently tried to purchase a luxury home anywhere in the world and you have searched for market intelligence using public sources, then you probably know how difficult it is to find reliable and meaningful information that can influence your investment decision.
The reality is that useful articles and specific data on luxury property markets are very hard to get. Most of what can be found online either talks about generic trends, like recent articles published by the Financial Times and Forbes on HNWIs’ property investments or, much more often, it is garbage written to fool Google’s algorithm. Sadly, most property portals and light news sites have been quite good at spamming the web.
In this post I share with you how I would collect market information in order to take an informed decision and reduce the risk of overpaying if I wanted to buy a nice property. Let me start with what I would not be doing:
1. Avoid unreliable data
I have no trust for stats that do not come from highly reputable organizations or do not clearly explain the calculation methodology. Much better if the publisher has no possible interest in manipulating or just spinning data at convenience. Whatever is the source I do not take seriously anything that infers market behavior from a survey or from few recent deals. One deal, no matter how relevant it can be, never represents the whole market.
2. Do not limit yourself to general stats
Headline numbers represent just big averages and may not be highly relevant to your specific investment decision. The fact that prices of luxury condos in New York have increased by 13% year-on-year or that total sales volumes in London and Miami rose sharply in 2013, mean very little. Real estate is local, very local, in a way that is never fully captured by stats published on blue chip media. In other words you would have to know which areas of Manhattan and which type of condos (size, price range) are growing the most, which type of buyers are most active (eg. local or international) and so on.
Besides, always remember that these numbers are backward looking and there is no certainty that a rising market will continue its upward trend. If you follow the news to make a purchase, by the time you actually complete your deal, the market may have changed again. Successful property investors are always countercyclical and get early in the trend.
This is what I would be doing:
1. Look beyond luxury property news
Property prices reflect what happens in our society and there are many trends that can be anticipated if you read between the lines.
For instance at the outbreak of the last financial crisis a flight to safety assets wasn’t difficult to imagine. High end properties in the centre of London went up more than 50% between 2009 and 2012 also fueled by a lower sterling; apartments in central Paris appreciated too (until Hollande took power…). Not all districts went up in the same way though. Super prime neighbourhoods with greater exposure to international investors, such as Knightsbridge and Chelsea in London or 6eme and 7eme in Paris, considerably outperformed less central ones.
In the US, the younger generation of homeowners and skilled workers suffered the worst consequences of the housing crush and the financial crisis. As a result you could expect that the sales market of smaller condos was going to be hit while the rental market could perform better (the effect is still visible today according to a recent study published by Harvard University).
Now that western economies are improving and the perceived risk is lower (while taxes on high-end property purchases are higher) we are hearing that, in certain countries like the UK, the rest of the property market may outperform the prime segment, which sounds reasonable.
2. Hire a pro
A qualified buying agent can offer you invaluable information about the local market. They are on the ground and see the deals happening and at what prices. They know how long properties have been on the market for and how much they have changed in price. With the help of a buying agent you can examine a property database with a reasonably large sample of homes for sale (including pre-market and off-market ones) containing the characteristics of each property, the expected rent based on similar homes and other useful information.
Buying agents offer other advantages: they can negotiate the best price and assist during the entire acquisition process; if you are based overseas or are very busy they can help you arrange the visits and keep regular contact with estate agents. Of course choosing the right buying agent is critical; since in most markets there are limited barriers to entry to become a property finder, the level of qualification may vary substantially between one professional and another. In previous blog posts we have published useful guidelines on how to choose a buying agent, the pros and cons, and what are their typical fees. If you pick a competent professional with good listening skills, I believe that the money is well spent.
3. View a good number of properties
If you do not want to hire or you cannot find a qualified buying agent (in certain countries like Italy, Switzerland or Spain they are not so common) I would recommend you build a simple database with property market data while searching and viewing houses that meet your criteria. Do not be afraid to ask lots of questions to estate agents and property owners.
Be aware that if a market is overheated most asking prices will be higher than average historic values but you will not be able to determine it from a comparable analysis. There are few ways to find out what part of the cycle the market is in. For instance running a replacement cost analysis you could determine the intrinsic market value and compare it with the current pricing level; this exercise is more complex for historical properties or when development costs are difficult to ascertain. Alternatively, you could compare the current cap rate (net yield) with the historic trend to determine if sales prices are on a higher or lower multiple of rent values (a local surveyor should be able to provide a 20+ years yield curve).
Remember that the more unique is the property and the more difficult the pricing effort will be. Expect few comparables, limited data and remarkable subjectivity. Do not be discouraged; with luxury properties the best you can get is an educated guess.
Davide Ruggiero is the founder of teatrium.net and highly passionate about residential luxury homes. Working with accomplished professionals he also helps clients on a range of digital assignments, particularly on paid search and content marketing. In his free time Davide loves playing with his two kids and free riding on the white mountains.
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Where did you find the best information on the luxury property market? How did you find your luxury property? What helped you make a successful real estate investment? You are welcome to share your experience with our users.
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