The Chinese are the most influential investors in new homes around the world, says a new Knight Frank report
The Chinese are the world’s most influential buyers of luxury new property, says a top agent.
Growing wealth creation around the world has meant that demand for luxury residential property in key locations has continued to expand, says Knight Frank in its newly-published Global Development Insightreport.
The report, which is issued quarterly, includes data on the luxury new build home sector from Knight Frank’s global network for the year to the end of July 2013.
“Our research, which takes into account the buying habits of high net worth individuals around the world, confirms that the Chinese are the most influential buyer nationality in the world’s prime new-build sector,” says Global Head of Residential Research, Liam Bailey.
“As well as being the top purchasers of new-build residential property in Sydney and Hong Kong, Chinese buyers are active in both Kuala Lumpur and Bangkok’s prime new-build markets. Additionally, they are growing in strength in key western markets, particularly New York.
“Chinese buyers’ global presence is fuelled in part by a strong Yuan and slowing domestic economy, both of which are encouraging Chinese investors to look further afield in an attempt to diversify their investments.”
The next most influential buyers are from Singapore and Russia, followed by UK and US buyers.
“Given the recent growth in wealth creation in Asia over the last few years, it is perhaps no surprise that buyers from this region feature strongly among our list of the top global new-build purchasers.
“There is no doubt that recent residential market cooling measures in Asia have acted as a spur for many investors from that region to look further afield,” the report explains.
Taking into account sales and survey data, Knight Frank has named key nationalities who will increase their investments in new-build residential property over the next 12 months.
“Chinese, Russian and US-based investors are all expected to retain and grow their market share. Latin American buyers meanwhile, particularly those from Brazil and Mexico are expected to feature more prominently in global new-build markets.”
China’s growing importance reflects the fact that it is second only to North America in terms of its billionaire population, and the number of high net worth individuals in China is forecast to rise 137% over the coming decade, according to Knight Frank’s The Wealth Report.
The US high net worth total is expected to rise 32% and Russia’s total of individuals worth US$30million or more is expected to increase 37% by 2016, a separate forecast by WealthInsight, shows.
In Latin America, the HNWI populations of Brazil are forecast to rise by 138% and in Mexico by 44% respectively over the next 10 years.
“We expect buyers from Latin America to become more important in the global new-build market in the future. Brazilian, Mexican and Venezuelan investors are already prominent in their regional markets but are increasingly looking further afield to locations including Miami, Paris and Madrid.
“Given the popularity of prime real estate as an investment in the years following the financial crisis, we expect a portion of this growing wealth will continue to be assigned to new-build property in key locations around the world.”
However, this is set against a backdrop of limited growth in overall investment activity. Half the survey respondents said that they believed the market share of non-local buyers of new build residential property would remain unchanged over the next 12 months.
The biggest property price gains during the year to Quarter 2, 2013 have come in Dubai at around 22%, Shanghai 17% and New York 13.6%. Falls have come in Barbados, Geneva and Singapore.
The response of governments around the world to property investment is another important factor.
“While many Asian policymakers are increasing property taxes in a bid to deter foreign buyers, the opposite trend is being seen in Europe. Here, particularly in southern European economies, governments are actively looking to attract foreign buyers to help stimulate ailing mainstream property markets and boost economic growth.”
In France, for example, President Hollande has reduced the time limit for full exemption from capital gains tax for owners of second homes from 30 to 22 years from 2014 and his previously introduced taper rates will now be set at a more favourable flat rate of 6% per annum.
Spain has already responded with its ‘Golden Visa’, which offers residency for property purchasers of €500,000 or more.
Another important issue is government restrictions of money flowing out, for instance, The Reserve Bank of India, recently announced no resident will be allowed to buy an immovable property abroad as part of a move to curb foreign exchange outflows.
The last ten years have seen the emergence and delivery of residential ‘trophy’ projects – developments in established international locations with strong demand from international buyers.
At the very top end of the market, for example, projects such as 432 Park Avenue in New York, Tour Odéon in Monaco, Faena in Miami and OPUS in Hong Kong the mix of buyers is very global. “As wealth creation continues in these locations their attractiveness to developers as markets to target following the launch of new projects will increase.”
New build investors are increasingly drawn to cities they perceive to be sheltered from wider economic issues, says the report.
“In fact, some 47% of respondents noted that the ‘safe haven effect’ was the biggest draw for their respective markets. Locations including New York, Monaco and Dubai fulfil this requirement and, accordingly, international buyers account for a growing share of their respective new-build markets. As well as offering a shelter from wider economic troubles, these locations are felt to offer the potential for long-term capital appreciation.”
Political and economic risk is a key driver of international demand for 39% of respondents. The euro crisis, for example, encouraged more buyers resident in the eurozone to look further afield to diversify their investments and move at least a portion of their wealth out of euros.
More punitive wealth taxes within countries like Italy, France and Spain have also encouraged some buyers resident in these markets to look elsewhere.
Business and currency issues were are other key factors in a wealthy individual’s decision to buy new-build property overseas. For instance, in the past year the South African rand has taken a tumble, particularly against sterling, giving certain international buyers an effective discount on property.
Government policy can also have an impact. “In Barbados, where purchasers are primarily lifestyle driven, recent adjustments to the residency rules that favour high-net-worth individuals have resulted in a spike in property enquiries, particularly at the top end of the market.”
Education and lifestyle are playing an increasingly important role when it comes to cross-border property investment. Cities which are home to world-class schools and universities, as well as offering a high quality of life and safe environment, stand to benefit in the long-run, says the report.
The Top 10 List is:
1. China – Target destinations: 1 Hong Kong, 2 New York, 3 London. Average spend US$2,800,700. Target property: 2-3 bedrooms
2. Singapore – Target destinations: 1 London, 2 Malaysia, 3 Tokyo. Average spend US$2,300,700. Target property: 2-3 bedrooms
3. Russia – Target destinations: 1 London, 2 New York, 3 Monaco. Average spend US$3,010,100. Target property: 2-3 bedrooms
4. UK – Target destinations: 1 Cote d’Azur, 2 Italy, 3 New York. Average spend US$1,800,900. Target property: 2-3 bedrooms
5 US – Target destinations: 1 London, 2 Paris, 3 Bahamas. Average spend US$2,050,300. Target property: 2-3 bedrooms
6. Hong Kong – Target destinations: 1 Sydney, 2 London, 3 Tokyo. Average spend US$2,100,700. Target property: 3-4 bedrooms
7. Indonesia – Target destinations: 1 Singapore, 2 Kuala Lumpur, 3 Sydney. Average spend US$3,300,300. Target property: 2-3 bedrooms
8. UAE – Target destinations: 1 London, 2 Paris, 3 Geneva. Average spend US$2,500,100. Target property: 2-3 bedrooms
9. Italy – Target destinations: 1 Geneva, 2 Monaco, 3 London. Average spend US$2,260,600. Target property: 2-3 bedrooms
10. India – Target destinations: 1 London, 2 Dubai, 3 New York. Average spend US$2,600,000. Target property: 3-4 bedrooms.