A growing number of ultra-high-net-worth individuals from emerging economies such as China, Brazil and Russia are snapping up luxury residential property in hot real estate markets worldwide—including San Francisco and New York, according to a recent report.
[contextly_sidebar id=”pqpSdXs6bIrRB7XLrpyZv6At2qy5JDAH”]Although international homebuyers represent a small portion of the overall San Francisco residential market, they do figure largely in the city’s luxury condominium sector, industry expert Patrick Carlisle said.
Investors and developers from China, in particular, “are coming in with billions of dollars in development money,” said Carlisle, chief market analyst of San Francisco-based Paragon Real Estate Group. “They are aggressively seeking new opportunities for development in the Bay Area. They really want to invest in the Bay Area.”
That trend is in line with a report by research organization Wealth-X and luxury real estate firm Sotheby’s International Realty that indicates growing confidence among the world’s very affluent to pour capital into high-end homes outside of their own country.
The report shows that Wealth-X’s Luxury Residential Real Estate Index rose to 115.2 in the second quarter of 2015—a year-over-year increase of 8.3 percent. That rise also marks the sixth straight quarter in which the index has gone up, highlighting “the continued strength of real estate as an investment for the global ultra-wealthy population,” the report said.
Not even China’s stock-market volatility and currency devaluation over the past few weeks will dissuade the wealthiest in that country from continuing to seek out luxury homes abroad, Wealth-X President David Friedman said.
“The drop in Chinese currency means luxury real estate in the U.S. will be more expensive to them,” Friedman said, but American property remains a financially and politically stable opportunity to diversify their investment portfolios.
“Security trumps price,” he said, adding that the financial volatility in China is what has been driving investors there to look for assets overseas in the first place.
That sense of security is a key reason behind the investment actions of the ultra-wealthy from emerging nations, the report said. Their decisions are fueled by “market fluctuations, business considerations and political upheaval” in their country.
Friedman said these ultra-wealthy represent individuals, companies and developers. “It’s across the board,” he said.
Many of these ultra-wealthy are buying a luxury residence “sight unseen,” getting their information about the property through social media, he said. That means they regard the property strictly as an investment, not a place in which to live.
But others are motivated by the lure of residency in another nation, the report said. For them, buying a home is often the best route to citizenship or visa status in a foreign country.
“An increasing number of nations offer citizenship by investment programs, by which individuals can gain residency to a country following a significant investment,” the report said.
The U.S. EB-5 investor visa program, for instance, grants permanent-residency status to foreign nationals who invest a considerable amount in this country.
The report also found that 12 percent of second homes purchased by the ultra-wealthy from emerging nations are located outside their country of residence. The very wealthy from China make up the third largest share of foreign ultra-high-net-worth homeowners in the U.S. behind only those from Canada and the United Kingdom, the report said.
In the Bay Area, among some recent big projects financed by Chinese capital are the $300 million residential high-rise Silvery Towers in San Jose and the $300 million Lumina condos in San Francisco.
Also, Chinese real estate company Oceanwide Holdings Co. Ltd. acquired a twin-tower development site at First and Mission streets in San Francisco for nearly $300 million. Oceanwide’s total investment in constructing these towers—which would feature residential units, hotel rooms and office space—could reach up to $1.6 billion.
Carlisle said another study indicated that 30 percent to 50 percent of luxury condo owners in San Francisco had mailing addresses elsewhere. “This signifies that they are using these condos as a second home or renting them out,” he said.
Right now, more condos are being built and sold than single-family houses in the city, he said, and many of those condos are top of the line. “So wealthy buyers have a lot more choices in luxury condos than houses in San Francisco,” he said.
Friedman predicts the ultra-wealthy will continue to show strong investment in the luxury-home market for some time to come. Geopolitical uncertainty in certain countries “is not going away soon,” continuing to push investors in those nations to plunk their capital across international borders, he said.
“Plus, luxury property has always held a special place in the hearts of the ultra-wealthy” as this type of real estate with all the amenities can match their passion and interests, he said.