Sven Odia is the CEO of the international Engel & Völkers Group.
The real estate industry has been subject to major upheaval as a result of the global pandemic and its economic repercussions. Among ultra-high-net-worth individuals with net assets of over USD 100 million, residential property often forms an important part of investment strategy. As remote working is increasingly the norm, we are seeing new living and mobility trends emerge in the luxury market. Some affluent buyers are turning a secondary residence into a primary residence, while others choose to own two or more primary properties in different locations and split their time based on lifestyle preference. These property trends are just a few of the changes we can expect to see more of in 2022.
As an asset class, residential property inherently has lower volatility and a low correlation to stocks and bonds, which can improve the risk/return profile of an investment portfolio. The premium segment, namely properties over EUR 5 million, saw a sharp increase in demand, as real estate played a more significant role in investment than ever before. The international Engel & Völkers Group recorded a 97% rise in residential property transactions in the EUR 5 million to EUR 10 million segment from January to December 2021 compared to the previous year, and an increase of 90% in the top segment of properties valued over EUR 10 million. The significant growth in global demand in the premium segment reflects the stability of the market, which will continue in the coming years. The primary interest of ultra-high-net-worth individuals is not necessarily the return on their real estate investments alone, however, but rather their quality of life.
Generally speaking, taking a diversified and balanced approach to investments is advisable. The advantage of this is that assets are spread out across markets, currencies, and economic cycles, to balance out potential risks. At present, ultra-high-net-worth individuals from Germany are investing strongly in Barcelona, Lisbon, Madrid, Mallorca, and skiing resorts, while those based in the UK have commercial real estate investments in Germany at the top of their lists. International buyers from Italy and the USA are currently dominating the Parisian market where there is also a tangible increase in investors from the Middle East. In Hong Kong, specific areas are preferred by Chinese buyers due to their reputation, facilities, and location. Due to its rapid demographic development, economic growth, and high standard of living, Dubai in the UAE, which tops the Best Investment Migration Real Estate Index, is also becoming a preferred destination for international investors.
The pandemic has led to a revolution in the way we live, work, and travel. The desire for more space — both inside and out — has led to a surge in activity in international commuter and lifestyle relocation markets. Among European ultra-high-net-worth individuals, the Balearic Islands and especially Mallorca are regarded as long-term havens. In 2021, the demand for premium real estate among wealthy investors was significantly higher than in previous years. The transaction volume more than doubled in the Balearic Islands in comparison to the previous year, demonstrating their continued appeal as among the top residential and investment locations across the Mediterranean.
The growing trend of relocating to what have traditionally been considered holiday destinations in the Mediterranean, with high quality of life, is also being seen elsewhere — in particular, in the premium real estate markets on the Athens Riviera, the French Côte d’Azur, the Italian Amalfi Coast, and the Spanish Costa del Sol. When travel restrictions are eventually eased and international holidaymakers from the Americas and Asia return, destinations such as Cannes, Capri, Marbella, Monaco, Positano, Puerto Banus, and St. Tropez are set to experience an even higher leap in popularity.
The year-round use of holiday properties is also being registered in internationally sought-after ski destinations, with the appeal of a holiday in the mountains no longer limited to the winter months. Ultra-high-net-worth individuals are descending on their second homes in the summer months to take advantage of sporting pursuits such as hiking and golf. On Red Mountain in Aspen, where the extremely limited availability of luxury chalets is met with enormous international demand, properties are commanding average asking prices of USD 18 million, while property prices in prime locations in Austria’s Kitzbühel have tripled in recent years.
A key trend that will continue in 2022, especially among wealthy families and professionals with flexible working models, is the acquisition of real estate in their favorite holiday destination where remote work is possible. Depending on the region, clients often opt for estates with private access to beaches or with panoramic views of mountains or the ocean, or both. There is high demand for estates set on large plots in secluded locations that nevertheless enjoy convenient access to local shopping, international schools, and medical facilities. Some luxury homes even feature their own helipad or private boat dock. Home gyms, private cinemas, wine cellars, swimming pools, and spas with saunas are standard. Alongside a large garden or an expansive terrace, a buyer priority that has risen sharply is a home office with high-end facilities. High-speed internet has become one of the key search criteria.
Upmarket retreats in natural surroundings offer ultra-high-net-worth individuals the opportunity to relax and enjoy recreational pursuits, far removed from their daily working lives. The current pandemic is fueling a desire for country living. Hence, property types such as country and vineyard estates, manor houses, and châteaux are more attractive than ever. The main focus for investors in this asset class is passion and the fulfilment of a lifelong dream, whether a traditional estate with its own vineyard in South Africa, a charming farmhouse in Switzerland, or a private ranch with stables in America — luxury estates are proving to be an attractive alternative to classic seaside holiday homes. Some affluent investors with a strong interest in history and the arts have even realized their long-held dream of acquiring their own private castle. Until recently, it could take a year or more to sell a property of this caliber. Currently, the average time to market in Germany, for instance, is just three to six months.
In line with a growing investment interest among ultra-high-net-worth individuals in special and unusual types of real estate, increased demand for yachts has also been registered. According to Boat International, a record 1,024 superyachts (yachts longer than 80 feet) are currently either under construction or on order for 2022, which corresponds to an increase of 25% over the previous year.
Boats, motor yachts, and sailing yachts combine the advantages of a floating home with upscale comforts, the utmost privacy, and uncompromised flexibility. There is now a strong focus on individual travel experiences and a deeper appreciation of waterscapes and other natural surroundings. Technological innovations suggest that living on the water will become increasingly viable and attractive to investors, with some ultra-high-net-worth individuals seeking to add yachts to their asset portfolios.
Sustainable developments have gained further recognition as affluent individuals are becoming increasingly environmentally aware and concerned about their carbon footprints. Eco-friendly technologies that embrace green architecture and green design elements are guiding their investment decisions. Homes constructed with locally sourced materials are particularly high in demand; ideally, they are powered by sunlight, wind, and geothermal energy.
Due to comparatively moderate prices, real estate in Portugal’s Algarve region and Lisbon offers particularly high potential for appreciation in value. In 2020, numerous new hotel and resort projects, along with new private houses and apartments, were built on the Tróia peninsula on Portugal’s west coast. Increasing numbers of foreign investors are being attracted by Portugal’s so-called ‘golden visa’, the Portugal Golden Residence Permit Program. Since 2012, it has been possible for non-domestic investors to acquire a Golden Residence Permit, which entitles them to apply for citizenship after five years provided they commit to a five-year real estate investment of at least EUR 500,000 in Portugal. By far the highest number of Golden Residence Permits have been issued to Chinese citizens, followed by Brazilian, South African, Turkish, and Russian investors.
In Greece, which offers the Greece Golden Visa Program with an option to invest in real estate with a minimum value of EUR 250,000 plus taxes, prices remain moderate in most regions when compared to other European countries, offering interesting opportunities for buyers, as well as a diverse range of properties. Next to the traditional hotspots of Mykonos and Santorini, investments in the Cyclades, Paros, the Peloponnese, and Rhodes are also increasingly sought-after. Smaller islands such as Antiparos, Kea, Symi, and Syros are also attracting increasing numbers of interested buyers. Buyers based in the DACH region (namely, Germany, Austria, and Switzerland) currently make up the largest proportion of buyers, accounting for almost 50% of inquiries in the second home market. Buyers from other European countries make up around 35%, while 15% of inquiries come from further afield, from countries including the USA.