From the beaches of Australia, the wildlife parks in Africa to the glittering city scapes in Hong Kong - the most expensive homes in the world vary greatly in price but all are producing the best return on capital every experienced. 
- They also happen to be in the most exclusive, desirable, wealthy areas in whatever country globally. 

So what is the most expensive city in the world? 
(Extracted from Knight Frank 2007 Wealth Report)

“…London and Monaco fight for the top spot Which is the most expensive city in the world? London, New York, Hong Kong or Tokyo? All claim the title. The difficulty is in the comparison. The Knight Frank Prime International Index attempts to solve this problem by using a property benchmark allowing for a fairer comparison location by location. 

The result is that London has the title of most expensive city – by a whisker – just above Monaco at €35,000 per sq m. 

The list is crowned by the international markets. These are locations where international buyers make up a minimum of 20% of all purchases and 40% of the most expensive purchases. This domination by global locations reinforces our earlier contention that it is footloose HNWIs who are controlling the fortunes of the top of the market across the globe. You need to travel to the middle of the list before you find markets that are not frequented by these globetrotting elites. 

New contenders In terms of price growth, the crucial players to watch are St Petersburg and Moscow (Russia) and Delhi and Mumbai (India). Together with Guangzhou and Beijing (China), we are in the presence of the future key prime cities. We forecast that within 10 years, Moscow will vie with London for the most expensive city in the world. While the prime area of the city will be much smaller, the prices achievable for new build prime developments will be comparable. 

There is huge demand for prime property in Moscow owing to little existing stock and a very small potential pipeline of additional prime property. 

Our future forecast also sees New York sliding from its number three position to number four, below Hong Kong. This reflects our belief that the Hong Kong market will recover from its current cyclical trough and see an improvement in demand and pricing after several years of underperformance. Best country With Monaco controversially defined as a city, the field is now open for St Jean Cap Ferrat (France) to be crowned the most expensive country or town prime market (€30,300 per sq m). While St Jean sits comfortably ahead of the field, some of the locations listed might have the non-jet set scratching their heads and asking - where? 

Sunbelt and winter sport locations vie for top of table, with Courchevel (France) standing out in the Alps at €21,000 per sq m. The top 14 are all international second home locations, dominated by HNWIs who have the energy for skiing or yachting, while recuperating away from the office. 

At 15 and 16 in the table we see the entry of the UK commuter locations, in this case locations in Surrey and Oxfordshire. These are the UK country equivalents of Belgravia and Knightsbridge. 

Growth and decline 

Some commuter locations in the UK have made it into the top of the prime market table. These locations have risen on the back of domestic and international demand, albeit following quite low growth in 2004 to 2005. There will be more growth in prime country locations in the UK in 2007 and 2008 (probably double digit growth) as more equity is taken out of the London market. 

Flat price growth and the odd price fall have been seen in some markets, especially in France and Italy. These are areas where demand has matured and where growth has slowed, just as supply has been growing strongly. In both countries, we expect to see a revival of price growth over the next year to 18 months as demand growth begins to recover. 

Forecast 
We believe that the quest for exclusivity will see increasing purchase activity in locations much further afield.   

Brazil is a newly emerging location, which has seen a sharply higher profile in Europe and North America in recent years. We would suggest that over the next two to three years several areas in eastern Europe will join the accepted range of prime European locations. 

Croatia will be one of the first markets to offer prime country locations and prices in some areas are already beginning to compete with France or Spain……” _____________________________________________________________     




According to the 2006 International Residential Review published by international real estate firm Knight Frank, the world's prime residential markets saw strong growth in 2005, and second-home buying was a major factor. The company predicts that the 2006 report will indicate that buyers from growing economies will increasingly look abroad for real estate. Take a short walk around central London, past street after street of £5 million and £10 million houses, and there will be little doubt that the wealthy have become very wealthy in recent years. 

The rise of serious wealth has been characterised, in London at least, by the property buying habits of the City banker and the Russian billionaire. 

"We saw it about five years ago begin with Russian buyers. The really seriously wealthy buyers came into London and increased prices at the high end," says Liam Bailey, head of residential research for Knight Frank. 

"We expect to see the same process coming from China, Brazil, etc., as a new class of wealthy is created," he says. "America dominates in terms of number of millionaires, but you look at the potential of growth from places like India and China, it's absolutely vast." 

Prices in the high-end segment of Hong Kong's market have doubled from 2003 to 2005, and there has been an increase in wealthy Chinese buyers from other parts of Asia, Knight Frank says. Strong economic growth in Dubai has increased the interest in buying foreign real estate, especially in London. 

"There is lots of money going around the world these days," says Steve Laposa, director of the global real estate research group at PricewaterhouseCoopers. Increased transparency has made international real estate purchases less risky, he says. The internationalization of real estate services--agencies such as Knight Frank and RE/MAX work around the globe--has made more information available. And buyers with means are seeing that their real estate investments are in many cases performing better than their bond or equity investments. 

"These investors are seeing that, you know what, residential has had great returns as far as increase in capital values," he says. "They say, I'll invest in Hawaii, invest in Macau, etc." 

The list of the most expensive properties in the world is not really complete. Some owners only allow their homes to be on display to preselected potential buyers and then most do not reveal the asking price. "What we noticed in the last two years is that the most rapidly appreciating property prices are at the top end of the market," Knight Frank's Bailey says. A main reason is simple supply and demand, he says.   



For Instance:

A wealthy buyer of a house in London wants to be in an area like Mayfair or Kensington, already mature neighborhoods.

  "The number of properties doesn't grow, but demand can double or treble over a couple of years," he says. "These are discretionary purchases these aren't necessary. If they want it, they will pay what it takes to get it." 

The home once again at the top of our list is Updown Court, a spanking-new palace in England. The residence has what one might call strong curb appeal, with 103 rooms, five swimming pools and a heated marble driveway. What it doesn't have is an owner in residence, as it was built on speculation in the hopes that a very wealthy, probably foreign, buyer will covet it. 

Amid the lavish surroundings of Windlesham, England, stands a massive livable structure christened Updown Court, which happens to be the world’s most expensive house in the world. Built on a huge 58-acre estate, this one features 103 rooms plus everything that can be described as magnificence and richness to the core. 

Uptown court gives space to a personal offers a bowling alley and a private cinema for your recreation, stables if you love horses and squash and tennis courts to hit some shots when you wanna relax. Apart from this, a heated marble driveway awaits you every morning together with a parking space big enough to accommodate eight limousines. What more...? 

And your neighbour would be the Queen at Windsor Castle and Sir Elton John will be there beside you. I

n Palm Beach, where Donald Trump has put a massive oceanfront mansion on the market for a mere $US125 million. 

It's gorgeous and grand, with marble floors and a conservatory that overlooks the ocean. Trump bought it 2004 and began refurbishing it for a potential new owner. $125 million (1/2) Palm Beach, Fla. In 2004, Donald J. Trump bought former health care executive Abe Gosman's palace, Maison de L'Amitie, at bankruptcy auction for $41.25 million. With the refurbished version--complete with a ballroom, conservatory, 100-foot-long swimming pool and 475 feet of oceanfront--he aims to set a U.S. sales record. 

It is listed with Dolly Lenz and Geoff Thomas at Prudential Douglas Elliman. (Video: A tour of the most expensive home in America.) 

And New high: 
$75 million home In Orange County. 
By JEFF COLLINS 
The Orange County Register 
This ultramodern 30,000-square-foot Corona del Mar mansion had the highest residential property assessment in Orange County at the end of 2005, when its assessed value was listed at $29 million. 

BRUCE CHAMBERS, 
THE ORANGE COUNTY REGISTER 
For sale: modern Corona del Mar beauty, featuring state-of-the art electronics, a water treatment system, three pools, two spas, eight bedrooms and 10 bathrooms. Oh, and a bowling alley, vintage movie theater, café, gymnasium, auto museum, wine cellar behind a bank-vault door and just under an acre of beachfront land. Asking price? $75 million. That makes Portabello, as the mansion is known, one of the three most expensive residences currently for sale in America. 

Three Ponds Farm Estate in Bridgehampton, N.Y., has been on the market for more than a year at $75 million. And so the 22,000-square-foot Brighton Road home, which went on the market last week, is tied for the second-highest asking price in the nation – and is the most expensive in California. "It's not surprising because (Orange County) is a world-class destination," said Rick Goodwin, publisher of Ultimate Homes magazine, which documents the 1,000 most-expensive homes for sale. 

Orange County, like Palm Beach and the Hamptons, is "where people with money want to be." County records list the owner as Frank W. Pritt III, founder of Seattle software maker Attachmate Corp. and an avid car collector. Pritt purchased three adjacent beachfront lots in the Cameo Shores area for less than $12.5 million, consolidated them into a single tract in 1998 and launched a three-year effort to build his "soft contemporary" mansion. 

"It's the most exciting (house) I've done," said Brion Jeannette, the Newport Beach architect who designed the house in close consultation with Pritt. Jeannette said he was surprised by the asking price, but noted that the home, ideal for a large family and for informal entertaining, "was not inexpensive to build." County property assessors estimated that the house alone is worth at least $16 million and the land is worth more than $13 million, for a total assessed value of $29.6 million, highest residential assessment in the county. But because of Proposition 13, tax assessments usually are well below a home's market value. 

John McMonigle, the real estate agent signed to market the home, said the price tag is based on the estate's replacement cost: Around $45 million for the land and about $33 million for the home, at $1,500 per square foot. As impressive as these homes are, just as rarified are the neighbors. 

That holds true whether you are in England (the queen of England's home, Windsor Castle, is near Updown Court) or in a seemingly far-flung place like Marrakech, Morocco. A romantic Art Deco tower nestled in the middle of a lush, private oasis is on the market for $10 million, tying for fourth place on our Africa list. Buy it and you can borrow sugar from the Hermès family or renowned and reclusive designer Yves Saint Laurent. New properties are constantly popping up around the world--two impressive newcomers are in Istanbul, one for $100 million. 

But you will also see the same ones on our list year after year. 

Despite the expansion of Forbes' billionaires list (we found 793 this year, compared with 140 two decades ago), the number of people in the world who have the means to purchase a $100 million spread is quite small. And the subset of those who want a particular property with, say, views of the Bosphorus rather than the Atlantic Ocean, or done in the sleekest of contemporary styles rather than with gold leafing on the living room moldings, is even smaller. But fortunate, nonetheless. 

Property = profit, and the higher end of the market means much higher percentage profits. 

(Excerpts from Annual Wealth Report 2007)
Patrick Ramsay Head of Residential 
Knight Frank and Peter Charrington 
Managing Director, UK Citi Private Bank 

"..There has been an unparalleled growth of significant personal wealth in recent years. This development is a crucial trend, influencing consumption and saving patterns across the globe. The most noticeable result has been the concentration of wealth and the growing influence of high net worth individuals (HNWIs), defined as people with net assets in excess of US$10 million. 

This phenomenon has been felt across the entire economy with the private equity boom being a high profile symptom. 

Away from financial investments, one of the key components of the HNWI portfolio is residential property and in particular prime market property. To date the relationship between HNWIs and prime property has been overlooked, an omission that is remedied by the publication of The Annual Wealth Report: Prime Residential Property. 

This report marks the collaboration between Knight Frank, property consultants, and Citi Private Bank, a market leader in high value European residential lending, bringing together our respective expertise in the property and financial sectors. 

The increasing importance of residential property as an asset class and the role of second homes, investment properties and development potential. And the attitude of the wealthy towards risk and opportunity arising from their residential portfolios. 

The HNWIs are market leaders, making decisions to stay ahead of the competition. Their activities influence behaviour far beyond the prime markets, making the study of their motivations and attitudes of critical importance to understanding future trends in the residential property sector. 

Our understanding of this market helps us advise HNWIs in maximising their portfolio returns. What do the wealthy expect from residential property 

How has rising wealth influenced prime residential performance in the UK, 

Europe and globally over recent years 

Where trends are pointing to over the medium term.   



Confidence and prosperity 

Liam Bailey, Head of Residential Research at Knight Frank, presents the findings of The Wealth Report. 

The growth of wealth in recent years is a real and substantial trend. 

Residential property markets have been the astute witness to this wealth creation. 

The dramatic increase in central London prices against the background of a more sober market has demonstrated the influence of high net worth individuals (HNWIs) upon property. Prime International Residential Index. 

The index comprises a basket of properties located in more than 70 prime market locations worldwide. The properties are valued over time to provide an accurate guide to average prices and price movements. HNWIs are positive about property. 

They view their residential portfolio as an opportunity for lifestyle enjoyment, individuality and exclusivity. They are more aggressive in their investment strategies and are likely to have exposure to a range of what might be termed alternative investments such as hedge funds or private equity projects. They have a very confident attitude towards property in terms of locations and investment opportunities. 

One of the key differences between HNWIs and other investors is this attitude toward risk and reward. HNWIs have a higher than average weighting in residential property, with the vast majority being in prime markets. Their portfolio is internationally diverse. 

They are happy to invest in emerging economies and are open-minded to alternative investment locations. This wider global reach is reflected in property assets and the lifestyle drawn from more diversified portfolios. As investors they are incredibly diverse and this is reflected in the make-up and objectives of their portfolios. Some have a highly geared investment model aimed at highly leveraged returns. 

Others are content with prime and second homes. The one constant is that in almost all cases the residential element of their net worth has become more significant over time and is set to grow in the future. “This economic model explains some of the key drivers behind this growth of wealth and to help examine the implications on the residential market. The model provides interesting insights including the recognition that while property prices have grown steadily in most countries, the prime markets have seen growth well above the mainstream market rate. As the wealth of HNWIs rises, so does the cost of their desired property, goods and services. It really has never been so expensive to be wealthy. 

What motivates purchase activity in the prime market? Our experience is that HNWIs have several drivers underpinning their activities. The purchase of either a prime residence or a second home has to satisfy: 

Time poverty: The one thing that cannot be bought is time. Convenience and accessibility are key motivators not simply for the convenience of the commute to work, but also access to leisure pursuits. 

Luxury: There is a real, almost tangible sense of luxury that is attached to very high priced property. This quality increases continually with price. It doesn’t matter how expensive a property is, another more expensive either exists, or will in the future.

  Prestige: This quality is arguably one step above luxury. Modern iconic buildings and architects appeal as do historic buildings. Such properties make statements about their owners and how they wish to be perceived. Privacy: can be a mark of both luxury and prestige together with time it is one of the most significant issues for HNWIs. 

All of the above become harder to maintain as wealth grows. HNWIs try to keep ahead of the market either by bidding up prices to remain exclusive (London) or exploring new areas (Brazil). This pushing at the edge of the market makes HNWIs so crucial to understand. Where they go in terms of location and property types, the rest of the market will follow. Where to next? Over the next five years, the trend of growing wealth and greater wealth concentration will continue. London will be a key location for future investment and will be a conduit through which this wealth will be invested. 

The prime markets will continue to outperform here in the UK, Europe and internationally. There will be a significant demand and supply imbalance in the best prime market locations. Price growth this year will be lower than in 2006, although we predict prime markets will outperform mainstream markets by quite a margin. 

The plutonomies: the income share of the top 1% has risen dramatically since the late 1970s in the US, UK and Canada 

THE RISE AND RISE OF WEALTH 

While the majority of the population has become more affluent, the top proportion of households (by income) have witnessed a much more substantial and rapid increase in wealth. “Take a short walk around central London, past street after street of £5 million and £10 million houses, and there will be little doubt that the wealthy have become very wealthy in recent years. The rise of serious wealth has been characterised, in London at least, by the property buying habits of the City banker and the Russian billionaire. 

The property page headlines are not exaggerated. Wealth has been growing and its growth has been fastest for the superwealthy. London is a good starting point for our investigation as it is the de facto capital of the new plutonomy. Citi Investment Research first used the term plutonomy to define the emergence of a more stratified society in the late twentieth century in the US, UK and Canada.

  They noted that while the majority of the population had become more affluent, the top proportion of households (by income) had witnessed a more substantial and rapid increase in wealth. Plutonomies are countries where the wealthy have a disproportionate slice of economic wealth. This is not a unique historic phenomenon. In some ways the drift towards a much more egalitarian wealth structure in the twentieth century could be seen as an aberration.

It certainly is not the pattern of previous centuries. Such concentrations of wealth in plutonomies have a huge impact on savings and consumption patterns. In these economies, growth is powered and consumed by the very wealthy. Its opposite model, the egalitarian economy, has simply not seen such wealth concentration. Japan and most of continental Europe are examples of such egalitarian economies.   

To illustrate this trend, the top 1% of households (by wealth) in the UK have increased their share of national income dramatically in recent years, from a low of 6% of national income in 1978 to 13% in recent years. This is not far short of the 15% seen in the US (Figure 01). This experience is totally unlike continental Europe, where the share of wealth held by the top 1% of households has declined or at best stabilised in recent years. What drives an economy to become a plutonomy? 

Plutonomies rely on the presence of several factors to invigorate wealth. These include creative financial innovation, technologically driven productivity gains, capitalist friendly government, light touch regulation and an open attitude to sourcing international talent via immigration. 

The UK and the US have been very successful in two critical areas for plutonomy development. New media technologies have had a significant impact on wealth creation (internet downloading, cable and satellite TV). These outlets have massively increased market size and media audiences. The result has been the creation of new types of high wealth occupations in sports, music, television, film, fashion and design. 

The second area is the rise of occupations such as the legal and financial intermediaries, seen crowding into central London, who help realise the potential for the globalisation of production and consumption. All contribute to the development of the plutonomy model. 

The future… 

We predict that such wealth inequality will only increase. The UK will see a continued development in this direction. Wealth from the US, Europe, Russia, Middle East and Asia circles the world and a large proportion is invested either through, or in London. The ranks of the wealthy in the plutonomy are growing. It is in cities and locations characterised by global outlook and activity where we will see this trend most. Where are the next plutonomies? Eastern Europe appears to be embracing many of the characteristics of a plutonomy. Russia is the classic emerging plutonomy, and China and India are following closely. Over the last two decades where the plutonomy model has been developing, the wider population has seen the benefits of economic growth. 

The wealth pie has become larger for just about everyone. This growth will continue and we will see ongoing serious wealth concentrations in the plutonomies. Only significant political change will affect this trend. United States (US) United Kingdom (UK) Canada Year 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 

…..more >  

It has never been more expensive to be wealthy 

Property, the ultimate Giffen good The 2007 attitude survey What are the key factors influencing prime residence location? Which issues affecting prime residences will become more significant in the future? How confident are HNWIs regarding their primary residence location? Attitude survey: primary residence The 2007 attitude survey What are the key factors influencing prime residence location? Which issues affecting prime residences will become more significant in the future? How confident are HNWIs regarding their primary residence location? Prime property outperforms The global context Prime cities London and Monaco fight for the top spot Which is the most expensive city in the world? London, New York, Hong Kong or Tokyo? All claim the title. 

The difficulty is in the comparison. The Knight Frank Prime International Index attempts to solve this problem by using a property benchmark allowing for a fairer comparison location by location. The result is that London has the title of most expensive city – by a whisker – just above Monaco at €35,000 per sq m. The list is crowned by the international markets. These are locations where international buyers make up a minimum of 20% of all purchases and 40% of the most expensive purchases. 

This domination by global locations reinforces our earlier contention that it is footloose HNWIs who are controlling the fortunes of the top of the market across the globe. You need to travel to the middle of the list before you find markets that are not frequented by these globetrotting elites. New contenders In terms of price growth, the crucial players to watch are St Petersburg and Moscow (Russia) and Delhi and Mumbai (India). Together with Guangzhou and Beijing (China), we are in the presence of the future key prime cities. 

We forecast that within 10 years, Moscow will vie with London for the most expensive city in the world. While the prime area of the city will be much smaller, the prices achievable for new build prime developments will be comparable. There is huge demand for prime property in Moscow owing to little existing stock and a very small potential pipeline of additional prime property. Our future forecast also sees New York sliding from its number three position to number four, below Hong Kong. This reflects our belief that the Hong Kong market will recover from its current cyclical trough and see an improvement in demand and pricing after several years of underperformance. 

Best country (as apposed to city) 

With Monaco controversially defined as a city, the field is now open for St Jean Cap Ferrat (France) to be crowned the most expensive country or town prime market (€30,300 per sq m). While St Jean sits comfortably ahead of the field, some of the locations listed might have the non-jet set scratching their heads and asking - where? Sunbelt and winter sport locations vie for top of table, with Courchevel (France) standing out in the Alps at €21,000 per sq m. The top 14 are all international second home locations, dominated by HNWIs who have the energy for skiing or yachting, while recuperating away from the office. At 15 and 16 in the table we see the entry of the UK commuter locations, in this case locations in Surrey and Oxfordshire. These are the UK country equivalents of Belgravia and Knightsbridge.

Growth and decline 

Some commuter locations in the UK have made it into the top of the prime market table. 

These locations have risen on the back of domestic and international demand, albeit following quite low growth in 2004 to 2005. There will be more growth in prime country locations in the UK in 2007 and 2008 (probably double digit growth) as more equity is taken out of the London market. Flat price growth and the odd price fall have been seen in some markets, especially in France and Italy. These are areas where demand has matured and where growth has slowed, just as supply has been growing strongly. In both countries, we expect to see a revival of price growth over the next year to 18 months as demand growth begins to recover.

Forecast 

We believe that the quest for exclusivity will see increasing purchase activity in locations much further afield. Brazil is a newly emerging location, which has seen a sharply higher profile in Europe and North America in recent years. We would suggest that over the next two to three years several areas in eastern Europe will join the accepted range of prime European locations. Croatia will be one of the first markets to offer prime country locations and prices in some areas are already beginning to compete with France or Spain. 

Tax is critical 

Our survey revealed the importance that HNWIs place on taxation issues. The global nature of wealth creation and its mobility means that tax status has a crucial influence on choice of location for prime residence. Non-domicile residency in the UK has become much more significant over recent years. The UK offers a very positive environment for foreign HNWIs and this is a significant factor that has underpinned the rise in residential prices at the top of the London market. 

The non-domicile residents in the UK have a hugely positive view of the UK, especially central London and what we might term the London halo, the southern England prime country house market. London is seen as offering a good lifestyle, a friendly tax regime, open society and a can-do attitude similar to the US but different from the business environment perceived to exist in continental Europe. Alternatives The influence of tax status impacts significantly on residential market performance as in other markets, particularly the Offshore Financial Centres (OFC) in Europe and the Caribbean. Monaco is perhaps the most famous example. Many of its 33,000 residents are attracted by the very appealing tax status offered. 

Demand for residency and thus property has grown extraordinarily in recent years. With wealth in the financial sectors set to expand further, we expect prices to rise higher still. A smaller and more affordable alternative to Monaco, Andorra has seen demand growth for Passive Residency Permits and again for property. Demand has pushed prices higher at a rate of 10% per annum for several years. While not explosive, this growth is healthy. 

The Channel Islands offer additional alternatives for HNWIs looking to arrange their tax status. Demand is so strong that in Jersey long term residency is carefully controlled. With few exceptions, consent for residency is given to those who own a property on the island. The purchase of property is subject to consent, which is only given in a limited number of cases. There are many other OFCs offering tax benefits to HNWIs. The impact on the residential market is fairly consistent. A friendly HWNI tax system means property prices will be higher than they ordinarily would be. 

The really big change is that price inflation in almost all OFCs has become more significant in recent years. We believe it will continue at a much higher rate than that seen in non-OFCs over the short and medium term. Growth in wealth will underpin significant additional demand for prime residential property Barring a significant economic shock, the growth of serious wealth will continue apace in the UK and in the global economy. The plutonomy economic model in the UK will be reinforced over the next few years. 

The growth of wealth will see increased demand for prime residential property across the board in primary and secondary homes and investments.

Prime property will outperform 

Prime property prices in the UK will rise noticeably faster than the mainstream residential market in 2007. We expect to see a 12% increase in prime central London compared with 6% for the rest of the UK. 

The outlook for 2008 to 2010 is less certain, due to the high price level we are now seeing. Prices in central London have risen by 38% in 18 months. If our forecast for 2007 is correct, they will have risen by 55% in three years. Prime country property in the UK will outperform the mainstream market from 2007 to 2009, as the London boom releases more equity for country bound homeowners. 

Prime property globally will significantly outperform mainstream markets during 2007. Demand in prime markets will be underpinned by a growth in the wealthy population, the trend to more secondary homes and a greater willingness to treat residential property as an integral part of an asset class basket. Price forecasts in the global market can be a foolhardy occupation. 

We venture to say that the prime market will see growth in 2007 at double the rate seen in the mainstream market – 10% compared to 5% would be a realistic guesstimate. Growth rates in China, India, Russia and notably London will be half the rate seen in 2006. 


Could it all go wrong? 

Yes is the answer. It is always easy to feel confident when the market is strong. Property market commentators can fairly be accused of having very short memories. Such amnesia is not helped by the monthly release of sharply divergent market movement trackers. It is sobering to remember that it was only two years ago that the London market was still in the doldrums and a market meltdown for the UK, Australia and the US was being predicted. 

The reversal in the fortunes of the mainstream and the prime markets is directly related to the strength of the world economy and the ongoing growth witnessed globally. What would it take to knock the prime global residential market off track and see prices fall significantly? The most obvious risks are economic recession, geo-political instability and terror attacks. The last two are so difficult, if not impossible, to predict that we can set them to one side as unknowns. 

Economic recession prompted by higher inflation and higher interest rates, is probably the most significant and most likely of all the risks to the prime markets. The higher interest rate environment would place huge pressure on asset prices at all levels. Inflationary led interest rate rises would unravel the basis for current asset values the acceptability of current property yields is linked to the cost of money. If this rises, the value of property will fall. HNWIs are to some extent already insuring themselves against this eventuality, as their portfolios include significant use of hedging instruments. 

What makes us confident about the prime market? 

We have discussed at length the positive combination of world economic growth, the plutonomy model underpinning wealth expansion and concentration, and the increasing acceptance of residential property as an investment asset class. These are the key reasons for our confidence. 

The availability of prime residential property is relatively fixed in comparison to demand. Such properties are assets for aspirational lifestyles. Their value is driven by an inequity in the market between the number of properties available in the locations where HNWIs want to buy. 

Prime market outlook Annual Wealth Report 2007 29 

Growth in wealth will underpin significant additional demand for prime residential property Barring a significant economic shock, the growth of serious wealth will continue apace in the UK and in the global economy. The plutonomy economic model in the UK will be reinforced over the next few years. The growth of wealth will see increased demand for prime residential property across the board in primary and secondary homes and investments. Prime property will outperform Prime property prices in the UK will rise noticeably faster than the mainstream residential market in 2007. We expect to see a 12% increase in prime central London compared with 6% for the rest of the UK. The outlook for 2008 to 2010 is less certain, due to the high price level we are now seeing. Prices in central London have risen by 38% in 18 months. If our forecast for 2007 is correct, they will have risen by 55% in three years. Prime country property in the UK will outperform the mainstream market from 2007 to 2009, as the London boom releases more equity for country bound homeowners. 

Prime property globally will significantly outperform mainstream markets during 2007. 

Demand in prime markets will be underpinned by a growth in the wealthy population, the trend to more secondary homes and a greater willingness to treat residential property as an integral part of an asset class basket. Price forecasts in the global market can be a foolhardy occupation. 

We venture to say that the prime market will see growth in 2007 at double the rate seen in the mainstream market – 10% compared to 5% would be a realistic guesstimate. Growth rates in China, India, Russia and notably London will be half the rate seen in 2006. Could it all go wrong? Yes is the answer. It is always easy to feel confident when the market is strong. Property market commentators can fairly be accused of having very short memories. 

Such amnesia is not helped by the monthly release of sharply divergent market movement trackers. It is sobering to remember that it was only two years ago that the London market was still in the doldrums and a market meltdown for the UK, Australia and the US was being predicted. 

The reversal in the fortunes of the mainstream and the prime markets is directly related to the strength of the world economy and the ongoing growth witnessed globally. What would it take to knock the prime global residential market off track and see prices fall significantly? The most obvious risks are economic recession, geo-political instability and terror attacks. The last two are so difficult, if not impossible, to predict that we can set them to one side as unknowns. 




Exclusivity will drive the demand for locations only served by private jet. Island locations will become ever more desirable. Formerly off-pitch locations will find new appeal, especially alternatives to the very popular sunbelt option. Northern Europe will see more interest, especially Ireland and Scandinavia. Of UK households, 3% plan to buy a home abroad. There could well be a quadrupling of overseas second home ownership within the next 10 to 15 years. This is a huge increase. Add to this the impact of new Russian and Eastern European buyers, many of whom are only beginning to invest in these markets, and the growth could be higher. Assuming there is no significant backlash in the form of green taxes or regulations, this market is set to expand massively. Green issues begin to feature Green issues will begin to play a more significant role in HNWI investment thinking.

The desire to own and influence the renovation of ecological assets is already driving this agenda, especially for farmland and forestry investments. 

The concern will be less about carbon footprint reduction than the potential for offsetting activity. This area of activity is potentially huge. The purchase of land for ecological improvement is a noticeable area of growth. The interest in this area is much wider than restoring historic or degraded environments in the UK or Europe, but also extends globally – with rainforest investment and protection a growing trend. Unique property experiences The importance of exclusivity has been a feature of the HNWI market for a long time. In a desire for experimental or unique experiences, the desire for traditional shooting and fishing estates is now being exceeded by more eclectic activities attached to either primary or secondary homes. 

An example of individual exclusivity is the growing interest in properties with olive groves. An entire industry has grown to provide services to repair, prune and re-establish olive groves, From the beaches of Australia, the wildlife parks in Africa to the glittering city scapes in Hong Kong - the most expensive homes in the world vary greatly in price but all are producing the best return on capital every experienced.


They also happen to be in the most exclusive, desirable, wealthy areas in whatever country globally.