COVID-19 has changed the lives of millions of people around the world in vastly different ways. For the luxury real estate market in the West, 2020 was a year of revaluation and change for buyers.
A number of prime real estate markets in the US, Europe and the UK experienced a boom as the pandemic took hold. As people’s lives were effectively halted and holidays, jet setting and travel much less available, priorities began to change. An increased interest in luxury real estate is further fuelled by the relative success of vaccination rollouts in the UK and the US in particular.
Luxury real estate in the UK and US has proven resilient
So, broadly speaking, we saw a boom in luxury real estate throughout 2020. Insight from Knight Frank’s 2021 Prime International Residential Index shows that around 66% of the 100 markets tracked saw prices rise last year. The average growth for luxury markets was 4.5%.
In the US, the luxury real estate markets have been impressively strong, averaging a 6.1% growth. New York was the only prime market that registered a loss due to the virulence of the initial outbreak causing people to leave the city. Whether they will return or not remains to be seen, but it’s equally likely that they will remain in different regions.
When the panic of the pandemic hit, luxury real estate continued uncertainly. In a world where agents could no longer show prime properties to interested buyers in person, the strength of the market can be seen in its growth in both prices and numbers of sales.
With people working from home and remote schooling their families, there was a corresponding demand for larger properties with plenty of indoor and outdoor space. In other words, buyers in the luxury market bought their ideal place to live in the new pandemic-based world.
The growth scale for luxury real estate is uneven at a global level
On a global level, however, the scale of growth in the luxury real estate market is uneven. Due to the unprecedented and dramatic travel restrictions imposed by the pandemic, growth is confined largely to domestic markets. Therefore, in countries like China, Canada and the US where there are many Ultra High Net Worth Individuals (UHNW), the luxury market has continued to boom. In developing countries, the prime market sectors have fared less well. For example, three luxury markets in Africa were tracked in the Knight Frank report, and they lost an average of 5.5% in 2020.
This inability to buy luxury property overseas due to restrictions has naturally led to the same people seeking out luxury residential property in their own country. The pandemic provided the impetus for people in this market to retain their property in the City or down size, whilst at the same time investing in luxury property near the beach or in the country as a retreat from the pressures of living and working in a pandemic.
It appears that with locations restricted, the priorities of luxury property buyers have noticeably shifted. For example, certain regions with well established luxury markets outside of city centres have experienced a surge in demand. These include rural parts of the UK, skiing resorts in Switzerland and the beaches of New Zealand, for example.
Less developed prime markets experienced the opposite, with wealthy buyers in China continuing to seek out urban property. City centre living in China is still the most important aspirational living choice and moving back to rural areas not conducive with buying luxury residential property.
Change in buyer attitude likely to remain for the foreseeable future
Another shift that the market has seen has been a marked difference in quantifying property by owners. Rather than living in their first home for the majority of the year and holidaying in the second, there has been a move towards a co-primary home.
This growing trend of spending much more time at the previously ‘second home’ has led to a change in demand from buyers. In other words, they want the same level of luxury that they would usually expect mostly from their first home.
While isolating has been a big part of this pandemic, this does not mean that people want seclusion. Luxury buyers want to be connected, included and have excellent amenities, including healthcare, transport and WiFi.
So, what happens when borders open and people are free to scope out luxury property overseas again? It’s likely that a lot of prime stock that would have been available in normal times has been snapped up by domestic buyers keen to get in on the act before the newly open borders ramp up prices.
However the pandemic plays out, we will have to learn to live with the threat of COVID-19 on a permanent basis and open mindedness to the fact that one day there will be a COVID-20/21.
This will mean outside open garden space and spacious properties will continue to be in increased demand, as remote working continues to be a reality and for some a more desirable option, which may end up being permanent for many, the demand for more luxurious internal amenities will continue to grow and shape buying decisions.