luxury real estate

The luxury real estate market was long considered – or rather advertised – as being immune to the ups and down of the rest of the market. Since the financial downturn began, it is fair to say that the luxury end of the market was lagging behind the base market for some time. Mostly because many of the potential buyers in that market (bankers and financiers) were still drawing enormous bonuses even as the banks collapsed. That has now come to a halt, at least for a while, so the luxury market is suffering along with the rest of the world’s property markets. London, Manhattan, Dubai, Singapore, Hong Kong et al have all seen drastic falls in the value of the high-end property, along with severe drops in sales volumes and recently – foreclosures.

Foreclosures in the high-end of the market were almost unheard of until recently, but are a growing issue. Part of the problem, I have to say is the stunning amount of “luxury” condominiums that were being during the boom times. Most developers are too slow to react (it taking some time to complete a 300 condo development) to have been abke to cancel projects as the downturn began, and many of the condo developments recently hitting the market remain unsold, and the developers are turning to using them as student accommodation or rental units. This, in turn means a glut of rental accommodation available, and Manhattan for instance, is in the unusual position of being a renter’s market for a change.

Much the same story is playing out in the rest of the world, where sales volumes are so low as to be making it difficult to value any piece of luxury real estate. There seems to be a huge disconnect between buyers and sellers. Sellers are hanging on by the skin of their teeth to at least cover outstanding mortgages; and buyers are playing a waiting game, well aware there is a massive over supply in all but the tightest or most prestigious markets. But even right at the top end, sales are sluggish to nonexistent. The recent sale of the most expensive villa in France fell through when the buyer needed to pull out t the last minute. Under French law, he lost his 10% deposit of 39 million Euros., which the owner promptly donated to charity when he started to fight over it.

Realistically, there is more short-term pain for the luxury real estate sector. No doubt, once the governments have finished pouring billions of dollars, pounds, euros and roubles into the banking system and we have ridiculous bonuses back on the table, things will change, but for now, the luxury property market is going to continue to see declining values and slow sales.