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Property Talk

Property Talk

Author: Andreas Wessenaar
Date: 2019-09-20

The luxury property market and what it takes to service that market

Having serviced the luxury residential market for almost 25 years I always find it interesting when leading realtors in the US, such as Hilton & Hybrand Real Estate agents, known for their extravagant US$180m listings in Beverley Hills, provide their considered view of the luxury property market and what it takes to service that market.

What I have noticed is that very few agents are equipped to service the top end of the market. They simply do not have the demeanour. You can only realistically service a market that you are part of and/or have an implicit understanding of. As a realtor servicing this market you have to fully understand the requirements and concerns that people have when considering a luxury property.

Most Ultra High Net Worth Individuals (UHNWI's) I have dealt with over the years are very down to earth and could easily pass unnoticed in a shopping mall. They will never discuss how much money they have or earn with you.

Most of them manage large businesses and being decisive is part of their DNA. Typically, however, they will create a layer between the salesperson and themselves and their trusted advisors or friends will be the go-between.

These people will visit the properties in advance, scrutinize the contractual aspects of a transaction and only bring in the actual client for a final overview and decision once the groundwork is done. For me, a red flag is when an apparent luxury property buyer has too much time on their hands.

Interestingly the Hilton & Hybrand Agents are reporting a slowdown in their luxury market - something we have experienced in South Africa for the last two years. Global uncertainty, US-China Trade Wars, and instability across various regions create uncertainty and this is a killer of confidence or sentiment, which is the critical driver of the luxury end of the market.

Most luxury property purchasers are what I call discretionary. They do not have to own the asset. They would like to, they would get some value from it, but they do not need to have it as a primary residence.

The purchase of a high-end property is a decision that can easily be delayed or put on the back-burner. When confidence is absent this money seeks shelter in income-earning money market funds.

When confidence returns it starts chasing assets and especially those that are considered prime. The Atlantic Seaboard in Cape Town is a great example. This area is home to South Africa's most expensive luxury residential homes and UHNWI's are often compelled to invest in areas that other similar buyers are investing in.

If a new development attracts interest from one or two influencers, it quickly becomes the place to invest in and pricing then becomes secondary to position and availability within the scheme. The amazing thing is that the most expensive opportunities within these types of developments are often sold first - such as a strip of top floor penthouse apartments.

Sol Kerzner understood this perfectly when he decided to develop three ultra-exclusive penthouse apartments at the top of his One & Only Hotel in the V&A Waterfront. This stroke of genius paid off when one traded at over R100,000,000 setting a national record at the time.