A home is a very personal thing, defined as much by emotional ties as anything else; but wealthy individuals also have practical and financial reasons to invest in bricks and mortar. Discretion is important when dealing with personal residencies, especially for the wealthy. In some cases, though, projecting the right public image can be important too. Basketball icon Michael Jordan, for example, takes it to the extreme: in the YouTube video used to help sell his luxury estate, he portrays himself in a very particular way – as you can see in the video below.
According to data from Knight Frank, property is a popular element in the investment portfolios of wealthy people all over the world, and especially in the Pacific region (42%) or in the Middle East (40%). Europe’s wealthy have 33% of their money invested in property, while in North America it’s only 24%. Residential property is generally favored (81%) over offices (59%). Sure, not all of this real estate is for personal use, but 23% of the wealth of billionaires worldwide, according to Knight Frank, is accounted for by a main residency and second homes. According to a report by Wealth-X and the Sotheby’s real estate department, billionaires own an average of four properties each.
The absolute amount of money invested is impressive: 2.9 trillion dollars of the world’s UHNW wealth is currently held in owner-occupied residential real estate, according to Wealth-X and Sotheby’s. Given that the number of extremely wealthy people is increasing (by 6% from 2013 to 2014) and that a “global lifestyle” has become the norm, experts predict a solid outlook for the business. If you are in the market now or in the near future, opportunities to find something interesting are likely to rise. Properties are being sold more often than they were some years ago, with UHNW individuals selling one every three years.
Especially in Europe, primary residences are frequently passed down from one generation to the next. Obviously the emotions involved are especially strong for primary and secondary residencies, because they are often closely linked to a family’s history. If, for example, you are interested in an old British castle that has been held by a family for generations there’s a sweet spot, according to Wealth-X and Sotheby’s: there’s a higher statistical chance of getting hold of long-time family-owned real estate in the first two years after inheritance. After that point, it’s more likely that the estate will be kept for the next generation.
Described as “keen investors”, Russian and Chinese buyers are very active in the luxury real estate market according to Wealth-X and Sotheby’s. You could be forgiven for thinking this is purely business driven, but there are also strong emotional and cultural reasons involved for both nationalities. Wealthy Russians, for example, consider real estate as a hobby, especially favoring the UK, the United States, Italy, France and Switzerland as locations for secondary homes. Meanwhile, wealthy Chinese describe real estate as a passion. Aside from Asia, they are especially interested in prime real estate in the United States, but also Australia and Canada.
Buying a second home abroad is becoming increasingly important to wealthy people. A decision to invest in a second home is usually prompted by personal reasons. Perhaps you want to expand your business activities into a certain country, dedicate yourself more to a certain hobby (e.g. sailing, wine, or skiing), or you’re looking for the best education for your children. However Elmar Wiederin, Senior Partner and Vice Chairman at Kaiser Partner, advises people not to forget the financial issues: “Buying a secondary home abroad can have significant financial implications. Before you make your final decision you should consider whether you are exposing yourself to currency fluctuations, and investigate whether you have to pay tax when selling an estate. Advisory fees are often significant as well when buying or selling an estate.” Consequently, Wiederin believes, “you should definitely talk to your wealth manager in advance about what such an investment might mean for your financial situation.”