As global inflation, benchmark interest rates and recession risk have risen over the past several months, affluent consumers are continuing to move money into hard assets, particularly the type that can also be enjoyed now. Ongoing research with Christie’s International Real Estate affiliates confirms the demand for luxury real estate as a safe-haven investment remains strong as buyers seek a hedge against inflation, but a mid-year market shift also suggests that sustainable differentiation may now be a key to home-price stability as volatility rises. For this reason, it will be increasingly important to evaluate each market—and buying/selling opportunity—with a trusted local expert as conditions evolve throughout the remainder of 2022 and into 2023.
Real estate markets across the world have benefitted from the pandemic-fueled demand for both luxury lifestyles and hard assets—not just in the world’s hottest high-end markets such as Dubai and Aspen, but also in markets perceived as “luxury values” like the U.S. Virgin Islands and the Carolinas.
As in many other markets that have gained favor with luxury buyers since the pandemic, the most in-demand home feature in the Caribbean is waterfront access, according to Nick Vanassche, partner at Christie’s International Real Estate | the Saints. “The biggest trend that we’re going to continue to see through the end of 2022 is that a lot of clients are still looking for marquee assets,” Vanassche said, “They’re looking for places to park cash, such as in waterfront homes.”
WATCH: Why now is a good time to buy in the U.S. Virgin Islands.
Values are still attractive following the build-back from two major hurricanes in 2017 and the pandemic. Couple that with favorable tax policies and major infrastructure investment, and Vanassche believes the next three to five years look strong for luxury real estate in the U.S. Virgin Islands. “We feel quite strongly that because of our land prices still being what they are and opportunistic, house prices being less than, more often than not, what you can build them for. . . . But we also have billions of dollars of Fed money coming in for upgrading all of our infrastructure.”
Another market with big upside is the Carolinas. South Carolina’s Low Country has exploded in recent years as buyers from the Northeast, California, and other pricier regions of the U.S. discover the area’s relative value. Ford Elliott, partner at BlackStream Christie’s International Real Estate, said his firm will sell 10 times the number of million-dollar homes this year vs. five years ago.
“We’re probably bullish on leisure more than anything right now. Hilton Head and other markets like that are going to continue to see pent-up demand because people want to experience life,” Elliott explained. “It’s great to have [investments], but people are looking for experiences. They want to get out and enjoy the beach.”
However, while some markets have room to run, others appear to be cooling—or at least finding some equilibrium. One of the world’s hottest second-home markets for years, Canada’s Muskoka District, near Toronto, has seen lakeside home values skyrocket since 2020 as wealthy families sought not just sanctuaries but safe-haven investments. Now with inventory and interest rates rising, second homes are seeing their first post-pandemic tests.
WATCH: The uber-wealthy have taken to viewing lakefront property in Canada’s Muskoka District as an asset.
According to a recent mid-year report by Christie’s International Real Estate affiliate Chestnut Park Real Estate, strong price growth in Muskoka continued in the first half of 2022—with the average sales price in June up 35.5 percent from a year ago to CA$1,527,892 (approx. US$1,170,305). But buyers are no longer paying over list. As the Bank of Canada raised its benchmark rate, sales moderated, and inventory jumped to a more balanced 4.1 months.
Taking a Longer View on Luxury Lifestyles
Of course, central banks all over the world are attempting to manage the worst inflation in four decades. The U.S. Federal Reserve is aggressively raising interest rates, and this is having an impact on the pricing of all assets. The U.S. stock market had its worst first half since 1970, and bonds saw their biggest selloff in four decades. Wall Street is divided on what the second half of 2022 will bring—with some predicting further pain, and others predicting gains.
Either way, market volatility is driving the move to hard assets, especially in regions where more wealth is tied to commodities such as oil. In Dubai, money is pouring into residential real estate from sources near and far.
According to Dinesh Chhatwani, managing partner at Christie’s International Real Estate Dubai, real estate developers have expedited off-plan launches of more than 100 new projects in the past year and a half with no fear of a glut. “Dubai is only getting started,” said Chhatwani. “The luxury market has bloomed in the last three to four years, really since before the pandemic.”
While some pullback has occurred in the “middle class” price ranges between AED 4 million to 12 million (approx. $1.09 million to $3.27 million), Chhatwani said ultra-high-net-worth buyers continue to park money in Dubai, where they can enjoy a variety of benefits, including the UAE’s Golden Visa program, friendly tax policies including no residential property taxes, and recently eased cultural laws. This dramatically increased the flow of international buyers from countries such as the UK, France, Germany, and India.
One of the biggest post-pandemic trends in Dubai has been the evolution beyond the city’s famed skyscrapers to villas with private pools and more outdoor space. Prices for these homes, which are in very short supply, have easily doubled and in some cases tripled within the last couple of years. The recent sale of a four-bedroom villa on Dubai’s exclusive Palm Jumeirah island for over AED 16.3 million (approx. $4.45 million) highlights not only the emergence of low-rise living but also demand from buyers for properties with attractive yield possibilities of 7 to 8 percent in the growing rental market.