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Knight Frank

North America Leads Luxury Housing Trends in 2Q14 – Knight Frank

July 30, 2014 | 12:34 pm | delogo |

KFpgci2q14NA

Knight Frank published their quarterly Prime Global Cities Index today and North America led the way as a region with a 14.5% rise in prices. “Prime” translates to “Luxury” in US housingspeak. We provide research for their Manhattan and Miami results through the Elliman Reports we prepare.

The report conclusion succinctly summarizes the state of high end housing today and speaks to the global phenomenon:

…the index’s annual increase of 6.2% in the year to June is above the long-run average of 4.6% recorded since Lehman’s collapse in the third quarter of 2008, underlining the extent to which prime property has become a favoured asset class globally.

Here’s the table…

KFpgci2q14
[click on table to open report]

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Safety First: Explaining Flood of Asian Investors Into Western Real Estate

March 15, 2014 | 12:50 pm | kflogo |

This is a good interview with Alistair Elliott, senior partner and chairman at Knight Frank by Josh Noble of FT about the buying binge of Asian investors in many major global cities like London, Vancouver, Sydney and New York City…”mature financial cities.”

Institutional investors come first, then developers and then private investors. The phenomenon is at it’s very early stages.

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2014 Knight Frank Wealth Report Goes Interstellar

March 6, 2014 | 1:00 am | kflogo |

PIRI2014
Source: Knight Frank

Knight Frank just released their 2014 Wealth Report which takes a look at the investment trends for ultra high net worth individuals (aka UHNWI’s defined as $30M+). It’s chock full of investment insights, including real estate. We provided some data/insight to the report (translation: a very tiny portion). Yesterday I mentioned their crazy new Asteroid Index yesterday.

Here are a few topics covered in the report:

kfglobalwealthdistribution
Source: Knight Frank [click to expand]

kfcityrank
Source: Knight Frank

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Knight Frank’s Asteroid Index

March 4, 2014 | 10:22 am | kflogo |

kfasteroidndex
[click to expand]

Knight Frank, my friends across the pond, go interstellar in this incredibly detailed info graphic excerpted from their new Wealth Report To Infinity and Beyond for Property They also include a link to their interview with Richard Branson on the post.

The Wealth Report 2014 highlights the rising trend for private wealth investment in space research — from asteroid mining to sub-orbital space travel. Knight Frank has identified more than 70 wealthy individuals, with a combined wealth of over US$200 billion, who are targeting this growth sector. The investment promises to transform terrestrial property markets.

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Impact of Lehman Collapse on Housing Prices in Europe

September 13, 2013 | 3:52 pm | kflogo |


Source: Knight Frank [click chart to expand]

This chart could also be called “Why International Demand for US housing is Elevated” since many European investors are looking for safe places to park their money.

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[Knight Frank] Global Reports That Look Forward and Backward : Europe As Denominator

December 13, 2012 | 9:35 am | kflogo | Reports |


[click to open report]

Where we’ve been

Knight Frank’s Global House Price Index is published quarterly and tracks the performance of mainstream national housing markets around the world. They use Case Shiller results for the US market.

Europe at bottom:

With the Eurozone now in its second recession in three years buyer confidence is at an all-time low and it is no coincidence that all the bottom 12 rankings are occupied by European countries this quarter.

The top performers:

But it’s not all bad news. Six markets recorded double-digit annual price growth in the year to September; Brazil, Hong Kong, Turkey, Russia, Colombia and Austria.

Where we’re going


[click to open report]

I help provide their Manhattan and Miami insights and they liked the way I characterize the state of luxury housing as a “safe-haven” and the “new international currency.” Here are the top line observations in their Q4 12 Prime Global Forecast:

• In 2013, we expect prime residential prices across the 14 cities included in our forecast to rise by 2.5% on average, with Moscow, Miami and Dubai being the strongest performers.
• A sharp slowdown in the global economy is the highest risk for the world’s prime residential markets closely followed by government cooling measures.
• However, the current economic uncertainty is also considered a key driver of demand in prime cities as HNWIs seek the shelter of ‘safe-haven’ investments.
• Supply, or the lack of it, will be a key determinant of price performance in cities such as New York, Moscow and Miami in 2013.
• We envisage that government-imposed regulatory measures will keep a lid on price growth in Asia in 2013 but the west-east shift in the economic balance of power suggests more promising prospects in the medium term.



Q3 12 Global House Price Index [Knight Frank]
Q4 12 Prime Global Forecast [Knight Frank]

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Looking For That Ray – Knight Frank’s Sunshine Index

December 7, 2012 | 7:00 am | kflogo | Reports |


[click to open WSJ article]

As a followup to my analysis of light on property values, I came across this fun way to look at the market.

…real-estate consulting firm Knight Frank looked at 14 warm-weather vacation spots around the world. Using the average hours of sunlight per day and the average house price for a four-bedroom property in a prime real-estate location, Knight Frank arrived at the price for an hour of sunshine, averaged over a year…

Of course this is merely another way to slice and dice the high end housing market – just like the stock market – not scientific or useful but still fascinating – Florida looks like a pretty good deal.



Knight Frank Sunshine Index [WSJ]


Knight Frank GHPI 3Q12 – Brazil up 15.2%, Greece down 11.7% YOY

December 5, 2012 | 9:46 pm | kflogo | Reports |

No surprises here. Knight Frank’s Global Home Price Index comprehensive ranking of housing price changes in 55 countries showed Brazil and it’s economic boom at the top of the list. The Brazilians have jump started the Miami housing market nearly single handedly because housing prices at home remain so high that the US appears much cheaper.

Highlights

  • The index rose 1% year-over-year
  • European countries fill bottom twelve rankings for YOY price growth
  • Price growth in Asia Pacific is slowing



Global House Price Index 3Q12 [Knight Frank]

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Luxury Real Estate as the New Global Currency

November 18, 2012 | 5:46 pm | delogo | Articles |


[click to read article]

Over the summer Camilla Papale, Douglas Elliman’s CMO asked me if I would present something about the state of luxury real estate for their Elliman Magazine (and iPad app!). The finished result contained 3 parts:

  • I wrote a brief piece about the influx of international demand as high end consumers were seeking a safe haven from the world’s economic problems. I called the piece: “LUXURY REAL ESTATE AS THE WORLD’S NEW CURRENCY” This post’s title was my working title which I also liked.
  • Plus I did a little research on housing prices across the globe using Knight Frank’s resources and
  • I moderated a discussion on the subject with Dottie Herman, President & CEO of Douglas Elliman, Patrick Dring, Head of International Residential at Knight Frank, and Liam Bailey, Head of Residential Research at Knight Frank. They all provided great insights to the subject.

Here’s the full piece in Elliman Magazine . I’ve inserted a portion of the presentation below in 2 parts:

LUXURY REAL ESTATE AS THE WORLD’S NEW CURRENCY

Since the beginning of the global credit crunch in 2008, luxury real estate has morphed into a new world currency that provides investors with both a tangible asset and a cachet that cannot be found within the financial markets. It’s as if these emboldened investors zoomed out of their local Google Earth view to discover the wider global perspective on luxury real estate.

HOW DID WE GET HERE? The US dollar has weakened in the years following the collapse of Lehman Brothers in the onset of the global credit crisis. The S&P downgrade of US debt in August 2011 from its benchmark AAA rating brought a flood of investors into US financial securities. That meant that our currency allowed us to buy less abroad, and the strength of other currencies provided international buyers with large discounts when purchasing property in US dollars. But it went further than that.

THE RISE OF LUXURY REAL ESTATE AS A “SAFE HAVEN.” The volatility of global financial markets and the resulting political fallout shook investor confidence, which in turn spurred a rise in foreign buyers seeking a safe haven to protect their assets. A wave of international buyers from Europe, South America, and Asia entered the US housing market, helping set record prices and revive luxury markets including New York, The Hamptons, and Miami.

SUPPLY-DRIVEN DEMAND. The luxury real estate market has become defined by the supply of available properties. While demand has remained constant and elevated, inventory has become a critical variable, particularly at the very top of the market, where surging international demand for one-of-a-kind properties has surpassed the limited supply. The resultant record-breaking sales of “trophy” properties have enticed more owners of luxury homes to make them available for sale.

THE RISE OF THE “TROPHY PROPERTY.” The trophy property has become a new market category that does not follow the rules and dynamics of the overall marketplace. One stratospheric price record is being set after another, and it is not only the list prices that are defining these record sales; the rarity of location, expanse of the views, quality of amenities, and the sheer size of these unique homes have all played an important part in attracting the interest of foreign buyers.

WHERE DO WE GO FROM HERE? Driven by the global credit crunch and political instability, the two factors that are expected to remain unchanged for the next several years, the US luxury housing market is expected to remain a “safe haven” for foreign investors for quite some time.

A CONVERSATION ABOUT THE COMMERCE OF GLOBAL LUXURY REAL ESTATE

I sat down with Dottie Herman and our friends across the pond, Patrick Dring, Head of International Residential, and Liam Bailey, Head of Residential Research at Knight Frank, to chat about the state of real estate in the prime markets across the globe and the rise of a foreign investment phenomenon.

JONATHAN MILLER: Douglas Elliman has a broad coverage area that includes some of the most affluent housing markets in the US. Are you seeing any short-term issues that may influence luxury investor decisions over the coming year?

DOTTIE HERMAN: At the end of this year, we may see a repeat of the consumer behavior we saw at the end of 2010 when US capital gains tax rates were expected to rise. Ultimately, the rates did not increase, but many consumers in the luxury market took preventative action before the potential tax increase and raced to close their sales by the end of 2010. Despite the ups and downs in the quarters that followed, the luxury housing market was not adversely impacted in the long-term.

JM: Paddy, according to Knight Frank’s Global Briefing blog, housing prices in central London are up sharply, but the pace of growth appears to be slowing, perhaps because of the new stamp duty (a tax on properties priced at £2M–the equivalent of $3.15M–or more). What does this mean for the luxury market?

PADDY DRING: In short, the £5M ($7.85M) market is up year-on-year. The new stamp duty on property sales above £2M seems to be having an impact only on the band just above the new £2M threshold. Foreign demand remains high and, notably, we have sold to over 62 different nationalities within the last 12 months. They are less affected by the changes in stamp duty, since the rates in London are still in line with many other European countries.

JM: Dottie, your firm has sold a large number of luxury properties this year, despite a lukewarm economy and tight credit conditions. Record sales and listing prices are becoming nearly commonplace and a significant portion of this demand for luxury real estate is coming from abroad. Do you see this developing into a long-term trend?

DH: It’s certainly been a year of records and I do think we are embarking on a period where luxury real estate has the potential to outperform the rest of the housing market. Several of the markets that we cover, Manhattan and Miami in particular, have been firmly established as highly sought-after international destinations. As much as we fret about how slowly our economy is recovering, the US has proven itself as a “safe haven” for many international investors who are concerned about the turmoil of the world economy and political stability. Luxury investors from much of Europe, Russia, Asia and South America have been buying here at the highest pace we have seen since the credit crunch began.

JM: Liam, the US is seeing a higher-than-normal influx of real estate demand from foreign investors who seem to be focusing on the upper end of the housing market. These investors are well represented from Europe, Asia and South America. Are you seeing the same phenomenon when it comes to luxury properties in the UK? What are the primary regions where this demand is coming from?

LIAM BAILEY: The focus of demand continues on London and its easily accessible suburbs. London is facing even higher global demand than New York, with the top end strongly led by Russia, Europe, Canada, and the Middle East, and demand in the new development investment market very much led by Asia.

JM: In the US, access to financing is a key challenge to domestic purchasers, including luxury investors. What are some of the key challenges facing your clients who are looking to purchase real estate outside of their own countries?

PD & LB: Financing remains a consideration for many, although mortgages are more available in many of the markets than people are led to believe. Of course, the property needs to be quality and in a core location and have a more conservative loan-to-value ratio, however, many of our clients purchase in cash, so they are more affected by market sentiment and, of course, liquidity if they need to sell unexpectedly in the future. Factors affecting market sentiment include the usual considerations, such as exchange rate, a stable political base, as well as a sound legal system that guarantees clarity of title and tax considerations. The latter of course is affecting not only the cost of acquisition (stamp duty), but also, in some countries, the cost of holding (wealth tax) and ultimately selling (capital gains tax). Access, infrastructure, and climate (if lifestyle-driven) all remain key, as do low crime rates as people become more aware of their privacy and personal safety.

JM: Since the beginning of the credit crunch, you’ve constantly stressed to your clients that the terms of a sale are just as important as the price of a sale, given the challenges of obtaining financing. How do international buyers fi t into this new world defined by tough lending standards?

DH: Despite mortgage lending in the US remaining tight, luxury markets in the areas we cover have improved quickly. I can only imagine how much stronger the US housing market would be if we saw credit ease to historically normal levels. International buyers tend to pay cash or obtain financing from their native countries, which has given them an advantage over many domestic purchasers. Combine the ability to pay in cash with both the weakness of the US dollar against many of their native currencies and a volatile global economy, and you can begin to understand why we are seeing a strong presence of international buyers in our markets. Like our friends at Knight Frank, these luxury investors are interested in our proven core markets that already have a large concentration of luxury properties. Overall, we continue to be excited about our market’s expanding presence in the global luxury housing market—there are many opportunities out there for this new international investor to explore.



Luxury Real Estate as the World’s New Currency [Miller Samuel (pdf)]
Luxury Real Estate as the World’s New Currency [Douglas Elliman]
Elliman iPad App [iTunes]

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Knight Frank Tall Towers Report Shows London With Similar Manhattan Height Premium

November 6, 2012 | 10:00 am | nymaglogo | Reports |

Knight Frank released their new report exploring the floor level premium in London’s high-rise residential developments with the coolest report name ever: Knight Frank Tall Towers Report 2012

While NYC has a taller residential housing stock than London but the premium per floor is similar. London shows a 1.5% increase in value per floor. My rule of thumb for Manhattan has been 1% to 1.5%, but closer to 1%. However we treat floor level as a different amenity than view and that’s probably the reason for the slightly larger adjustment in London. What’s particularly of interest is how much more the per floor cost of development is for higher floors:

Net to gross area ratios in tower schemes are lower, since the percentage of space taken up by the cores and service provision areas are comparatively high. This means that the effective revenue-generating 43% Uplift in construction costs per sq ft between the 10th and 50th floor.

I’ve explored the subject myself in New York Magazine and The Real Deal Magazine.



Tall Towers Report 2012 [Knight Frank]
Manhattan Values By Floor Level [Matrix/New York Magazine]
The cost of a view [The Real Deal]

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