World class cities not only attract international business, they are also the haunt of a growing number of global billionaires who are increasingly important investors in residential real estate, and their wealth is creating a new global super class of real estate, says Savills.
A new index of super prime ‘global billionaire’ property reveals that the homes of the super rich in the top 10 cities worldwide rose by an average 10 per cent in value in the first six months of this year.
This compares to average price growth of 6 per cent for a range of ordinary properties in the same cities and follows growth of 65 per cent in billionaire properties over the previous five years.
The index appears in Insights: World Cities Review published today by the international real estate adviser. It looks at the drivers of residential real estate in 10 cities that the company calls ‘world class’ – Hong Kong, London, Moscow, Mumbai, New York, Paris, Singapore, Shanghai, Sydney and Tokyo.
Yolande Barnes, director of residential research at Savills, says:
“We recently identified ten world class cities whose real estate markets have more in common with each other than the mainstream markets of the countries in which they operate and they are all attracting billionaires’ dollars, whether generated at home or overseas.
"Global billionaires can make any country their home, and often have several different residences across the globe. Most will seek a base where they are doing business.
“This has the effect of funnelling global equity into the very best residential real estate – a rare commodity in any city. Billionaire buyers demand the best international standards of accommodation and are paying prices to match, creating a super class of global billionaire homes.”
How the cities rank
Savills new global billionaire index shows that Hong Kong is in a league of its own for super prime prices. The city is also the most expensive city to accommodate a typical group of international business people (dubbed an ‘executive unit’ in the Savills index published last month).
Billionaire properties in Hong Kong average £6,700 per square foot. This is ahead of Tokyo at £5,190 and Paris at £3,290.
On this measure, Hong Kong’s super prime property is achieving prices that are more than double the London billionaire average and over ten times the price of Sydney, the cheapest location for billionaires.
The index also reveals some interesting observations regarding the size of homes for the super-wealthy.
Billionaires’ homes in Hong Kong may cost more on a price per square foot basis but they are amongst the smallest - averaging just over 5000 square foot, only ahead of Moscow at 4,600 square foot.
Sydney tops the table of size, at almost 20,000 square feet, but the real surprise is Tokyo, number 2 on prices, where the so-called billionaire home averages 16,000 square feet, twelve times the average for the Savills ‘Executive Unit’.
The rarity of property this size in the city makes the ultimate Tokyo home the most expensive of any world class city at £83m.
Price growth of ultra high value homes since 2005 has been highest in the emerging ‘new world’ economies of Singapore (+144%), Mumbai (+138%), Moscow (+110%) and Hong Kong (+83%) This pattern mirrors the geography of new wealth generation and the creation of new billionaires over that period.
In Shanghai, the other ‘new world’ location in the index, super prime property has shown much lower growth (32 per cent), well below the 143 per cent growth recorded across the Savills Executive Unit.
This suggests an underperformance at the very top end of the market is undoubtedly linked to China’s closed market, where billionaire demand is solely domestic, unlike the rest of our cities which are also fuelled by international buyers (excluding Tokyo, which also saw subdued growth).
Although numbers of Chinese billionaires are growing rapidly, the middle classes are greater in number and have fuelled price growth in the mainstream markets first. Perhaps prices in the billionaire segment will play catch up with substantial growth to come.
Old world beginning to offer value
In general terms, the ‘old world’ super prime markets have recorded lower price growth but, for now, dominate the top half of the table in terms of overall price.
London, Paris and New York are now beginning to look good value for the global super rich, as they offer the relative price stability associated with more mature, ‘old world’ markets, coupled with political stability.
Within the ‘old world’ it is the more cosmopolitan cities that have fared much better than those that place restrictions on foreign purchasers or which are simply less likely to attract them.
London in particular has been a real magnet for international wealth in recent years and saw net inward investment of over £3.3 billion in 2010, while Paris has seen recent sharp price rises, boosted by its position as an attractive entry point to the Shengen visa territory.
At the foot of the table, Sydney still offers great value and is extremely well-located to take advantage of Asian wealth if and when its policies restricting international buying are relaxed.
Barnes concludes:
“We have identified a small group of world cities where the top end of the residential market will continue to respond to the global economic climate and to the numbers of ultra high net worth individuals rather t
