Foreign Homebuyers Seek Luxury In U.S.

Investor's Business Daily

A U.S. home priced at $10 million is an expensive, eye-watering proposition for most Americans. But for the very rich, who F. Scott Fitzgerald wrote "are different than you and me," it may be a bargain when compared with other international locales.

Who would have thought 20 years ago that an investor from Shanghai might find a Manhattan penthouse affordable

Of the 10 most expensive cities in the world, New York is the only one from the U.S., said a recent report from England-based real estate consultancy Knight Frank and researcher WealthInsight. Monaco, Hong Kong, London, Singapore and Geneva all outranked the Big Apple. Sydney, Paris, Moscow and Shanghai rounded out the list.

In Hong Kong, which saw double-digit real estate price increases from 2009 to 2012, the average luxury home was valued at around $11,000 per square foot, the global real estate firm Savills said in a 2012 report. London, with its own booming real estate market, averaged $5,300 per square foot, while New York checked in at $4,100.

For the 12 months ended in February, 788 homes worth more than $10 million each were sold in the U.S., according to real estate website Zillow (Z). Slightly more than half were in the Los Angeles and New York areas. San Francisco, south Florida and Colorado ski resorts Aspen and Vail also saw some of the most-expensive transactions.

Chinese BuyersIn particular, Chinese homebuyers increasingly are buying up high-end property in the U.S., Realtors said. China's strong economic growth has generated dozens of billionaires and thousands of millionaires in recent years. They are attracted to America's stronger property rights and a relatively stable political and economic climate, according to the National Association of Realtors.

A September 2013 profile of international home buyers in Florida commissioned by the NAR found that 80% of Realtors surveyed said their clients found Florida real estate less expensive than similar property in their home country and that U.S. real estate provides good value. Nearly one-third of respondents said the number of international clients had increased during the prior five years. The median price paid by international buyers in Florida was $216,477 — 15.5% higher than the U.S. median and 33.4% higher than Florida's.

"If you look at the overall area of the U.S. marketplace, it's a very, very limited segment that's of interest to the international buyer," said John Burger, a New York-based luxury property seller.

Limited AppealLuxurious real property appreciated 8.4% in the New York area for the year ended in February compared to 6.7% for homes worth less than $10 million, according to Zillow. Nationwide, luxury real estate appreciated 12.5% vs. the overall 5.6% gain.

For Americans and foreign nationals with deep pockets, there are bargains to be had — even if the hoi polloi can't buy them.

"There is a general perception that high-end product in the United States is pretty reasonably priced," said Robert Bridges, a professor at University of Southern California.

Luxury real estate didn't quite endure the horrific housing bust that roiled average homeowners during the last decade.

A typical housing market downturn may be the result of oversupply. But the overleveraged borrowers holding much of the housing didn't apply to the deepest-pocketed well-to-do.

Still, the recession bruised the stock portfolios of high-net-worth individuals, who eventually rode out the bull market, now in its fifth year.

"It's not like people were dumping their properties," said Stijn Van Nieuwerburgh, a professor at New York University.

While mortgage lending ground to a halt in 2008-'10 for most of America, Burger estimates his business was off a more manageable 30% during the depths of the financial crisis because the very rich weren't in a panic.

"It was mostly people not buying and not splurging on new homes for a while," he said.

As the overall housing market has healed, high-net-worth individuals increasingly have opened their wallets to snap up homes in exclusive areas.

The pace of luxury-home sales tends to be slower than that of midpriced homes. Tract housing can be snapped up quickly.

"Finding the perfect buyer (of expensive homes) will take a while," said Svenja Gudell, director of economic research at Zillow. "These are not cookie-cutter homes. They will not please everyone.

Jack Cotton, a Cape Cod-based Realtor, said the reluctance of some high-end homebuyers to take advantage of expensive homes during the recession was a desire to stay below the radar. Some wealthy people were "afraid of being the guy who buys a $12 million house when people aren't doing that well.

"It just wasn't cool to do it several years ago," he said.

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