Insights For Luxury Buyers From Luxury Portfolio International
Purchasing a significant property is no simple task. There are several factors that impact the luxury real estate space, from the timing of your purchase to external economic conditions. Luxury Portfolio sat down with LeadingRE Chief Economist, Marci Rossell to discuss the factors luxury buyers need to be aware of in 2018.
Let’s explore the five insights Rossell shared for luxury buyers considering a purchase this year. You may also take a look at this interview in the Spring 2018 issue of Luxury Portfolio Magazine.
1. Policy is driving relocation rather than economics.
The tax policy is changing dramatically and buyers will be making choices about where to live based less on economics and more on where their tax burden goes down. The new changes to the U.S. tax code cap the deduction for state and local taxes to $10,000, and we can expect to see an increase in home buyers in low-tax states over the next decade. This will potentially put pressure on real estate prices in those areas.
“Now is the time for the affluent home buyer to keep their accountants on speed dial because laws are changing quickly,” Rossell said. “A home is a part of a larger portfolio and changing tax laws have an impact on the taxes on your assets, particularly if there is a change in geography. Though it may be discouraging for buyers in high tax area in the U.S., don’t be surprised if the next few years we see a financial innovation that mitigates the tax problem.”
Plus, the political consequences of Brexit in Europe will impact luxury markets across the globe, as buyers move out of London and into cities such as Dublin and Frankfurt.
2. Global economic growth is strong.
At this time, every region of the globe is experiencing growth, which has not happened in over a decade. Last year, the economy in India grew at 7 percent, China’s at 6 percent, the Euro Zone’s at 1.5 percent, and Russia recovered from a recession.
“As a result, central banks from Asia to Europe are rolling back monetary stimulus and tightening policy,” Rossell said. “But expect the same policy of slow, steady interest rate rises as the global economy continues to improve.”
3. Real estate may need to be rebalanced in your portfolio.
Stocks have risen dramatically in last two years, including the S&P 500 index tripling in value, which means it may be time to reconsider the overall balance of your portfolio and add more real estate to the mix. Buyers are encouraged to embrace more real estate in a portfolio amongst stocks, bonds and other assets.
4. Embrace blockchain technology.
Blockchain is a continuously growing list of records linked and secured using cryptography. Essentially, it is the technology that powers cryptocurrency, such as Bitcoin or Ethereum. It has already significantly impacted a variety of industries and sectors, and luxury real estate is no exception. In fact, the first major real estate transaction using blockchain technology took place in Ukraine in October of last year.
“With real estate, blockchain technology is likely to have the greatest impact in less economically developed parts of the world where property rights are less secure, title is more difficult to establish and fraud is of greatest concern,” said Rossell. “It will make transactions cheaper and easier for the most sophisticated buyers, especially across borders.”
While blockchain technology is still in an infant state, this “global currency” will dramatically impact how luxury real estate transactions are handled around the world.
5. Purchase sooner rather than later.
Luxury home buyers are encouraged to move quickly to secure luxury properties across the globe. There are a couple of factors colliding in 2018 that impact the sense of urgency: 1) millennial home buyers and 2) the new tax code.
The oldest millennials are beginning to purchase their first home as they desire to put down roots and start a family. As a result of the new tax code, some of the more wealthy millennials will seek out homes in low-tax areas, which will put upward pressure on luxury homes in desirable neighborhoods in the coming years.
“Couple these forces with synchronized global growth — which puts upward pressure on real estate prices and interest rates across the world — and it makes sense to lock in that attractive luxury property as soon as possible,” Rossell said.
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