The Super Rich are Investing More of Their Fortunes in Multiple Homes

The number of rich not only increased last year, the rich got richer.  The good news for you (if you sell luxury properties) is that the wealthy shifted a substantially higher percentage of their investment portfolios into real estate in 2006 -- and nearly half of those dollars were spent on second, third, or fourth homes! 

According to the just released World Wealth Report (registration required), an annual study prepared by Merrill Lynch and CapGemini, the number of financial millionaires jumped to 9.5 million worldwide. That’s up 8.3% over last year.

Of the total, 3.2 million are in North America. The report defines financial millionaires – also referred to as high net worth individuals (HNWI) -- as those with a million dollars or more in investable assets, not including their primary residences.  Total wealth of the world-wide group reached $37.2 trillion in US dollars. 

Last year, the global wealthy pulled substantial dollars out of “alternative investments” such as hedge funds, commodities, foreign currencies and venture capital funds.  Instead, they placed a whopping 24% of their total investments into real estate, an increase of 50% over 2005. 

While 51% of the HNWI’s overall real estate investments were in commercial real estate and real estate investment trusts, a whopping 49% of the total real estate investment went into vacation and second home properties, generally not financed with mortgages.  Statistics for North American millionaires are similar, with 41% of real estate investments in residential properties.

The wealthy are buying multiple homes.  North American vacation and second home sales are out performing the market overall and the number of trophy properties offered in the double and triple digit millions continues to grow both in the US and abroad. In 2006, US property sales in the $5 million and above range jumped 18% over the previous year and are up 31% in the first quarter of this year, according to DataQuick, a research firm which tracks homesales.

The recent record sale of a 20,000 square foot London penthouse overlooking Hyde Park for about $200 million to Sheikh Hamad of Qatar (a new world record as best I can tell!) and the sale of a custom home lot in New York’s Hamptons for $103 million are evidence that the super rich see trophy homes as smart investments that also make a statement and enhance one’s lifestyle.   Growing wealth is a global phenomenon.  The wealthy are citizens of the world, and the demand for uber homes from Dubai to London and from Moscow to New York is strong.

According to the World Wealth Report, "HNWIs are well-informed about present and approaching economic conditions and quickly reallocate their portfolios to capitalize on market trends. This year, globally, HNWIs liquidated some of their alternative investments to realize significant returns from real estate investments.”   

All this is great news for real estate professionals who work in the luxury market and a strong indication that the BIG opportunity in real estate today can be found where the luxury, vacation/second home, and international market segments intersect.

Comments

[Sharon Simms]

I found Savill's comment that "Trophy properties priced over $10 Million have an annual price inflation of 50%" to be exciting news!