Homebuyers with expensive taste on the prowl

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The world is experiencing a population boom of people who are absolutely rolling in money. And they're hungry for houses.

Lately, they've acquired such trophies as an $88million penthouse in Manhattan, N.Y., a $117million estate in Northern California and a $47 million mansion in Miami.

And they may just be getting started, according to Knight Frank, a London-based real estate firm that each year studies the spending habits of "high net worth individuals" (HNWI).

Its most recent findings, published in its seventh Wealth Report, concluded that even with the turbulent global economy of the past couple of years, the number of people with the equivalent of at least $30million in net assets bloomed by 5 percent in 2012.

And these multimillionaires should be getting plenty of company in the next decade, the real estate firm predicted.

Liam Bailey, the firm's global head of residential research, explained in an edited interview that HNWIs' acquisition of second, third or fourth homes may be based partly on a desire for a certain lifestyle, but they also are seeking places where they can safely stash their cash — and real estate is their first choice:

Q: What did your firm's annual report conclude about the numbers of HNWIs?

A: The numbers of people in that category rose last year by nearly 8,700. And their combined wealth increased by 2 percent, to $26 trillion. Over the next decade, 95,000 people are expected to break that $30million barrier, taking the number of HNWIs to nearly 286,000.

Most of the wealth is concentrated in Europe and North America, but in the next decade we'll see major increases in their numbers in such cities as Sao Paulo, Beijing and Mumbai.

There are increasingly more people who want and can afford luxury homes. It definitely has been a growing trend since the advent of the global financial crisis. There long has been a desire in emerging economies to diversify their portfolios, to put their money overseas, if they see that their economy is subject to economic or political risk, and so since 2007 or 2008, their much bigger focus, globally, has been into hard assets in locations they think safe, for the long term.

Q: Which locales are they most interested in?

A: We took data from the United Nations, the International Monetary Fund and numerous other sources to create our Global Cities Survey, which ranks the cities' influence alongside their real estate investment opportunities. New York has moved into the No. 1 spot. We set out to create a rounded assessment of the locations that matter to them the most, in terms of four criteria: economic activity, political power, quality of life, and knowledge and influence.

London holds the No. 2 position, followed by Paris, Tokyo, Hong Kong, Singapore, Sydney, Washington, D.C., Toronto and Zurich.

There were other U.S. locations in our analysis of the top 40 global cities — Boston was 14th, Chicago (17), Los Angeles (20), San Francisco (25) and Miami (26).

Q: Is the expansion of all this wealth driving real estate prices sky-high in these most influential cities?

A: The markets are polarized. A third of the markets in our 80-city index showed positive price growth, but about half reported negative growth.

Many of these areas where prices have been rising are seeing national and local governments, fearful of a housing bubble and the overall reduction of affordability, putting (homebuying) restrictions in place. Beijing, for example, has put limits on multiple home ownership and mortgage availability. The United Arab Emirates have new mortgage restrictions. Switzerland put a cap on second-home purchases. There are stamp-duty (tax) increases for purchases in Singapore and Hong Kong for nonresidents and limits on loan-to-value in order to restrict highly leveraged purchases.

The search for safe havens for HNWIs' funds was a key theme in this report. Miami, London and New York were prime havens, with international buyers seeking to escape currency and political fluctuations. There's concern about putting assets out of reach of their governments.

The U.S. is particularly attractive because it has repriced (its real estate) quite sharply after the crash; on some level New York and Miami look to be quite a value. Chinese investors had been seen coming more to London, but my understanding is that the West Coast and New York are where some of the bigger deals have been done.

Q: What about other regions — any budding interest in the Midwest by the international HNWIs?

A: Not a lot. It does tend to be concentrated on the East and West coasts. A lot of international buyers tend to be quite conservative when they first buy (abroad). Miami is well-known to them, and New York and LA. Once they're there, they become more confident about other areas they may go. A lot of these things take time.

One of the more surprising things I've observed since Knight Frank began this report is that with all of this wealth creation, you might have expected more second-home hubs to be developed, but what seems to be the case is that the people in those markets making lots of money are keen to buy in the already-established markets — London, New York, Paris — where there's an attraction to established infrastructure, schools, leisure.

HousingNews@comcast.net

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