The luxury real estate market has long been viewed as a safe haven for investors, offering not only opulent living spaces but also the potential for substantial returns. However, recent economic shifts and global uncertainties have caused many to wonder if now is truly the right time to invest in high-end properties.
“Higher interest rates, rising inflation and growing instability worldwide have introduced new challenges in the property market, even for this traditionally resilient sector. That being said, what we’re seeing is that luxury property continues to attract wealthy buyers, especially in prime locations like Constantiaberg,” says Arnold Maritz, Co-Principal for Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs and False Bay.
“For instance, according to Propstats data for Upper Constantia, in 2021 when lockdown ended and pent-up demand was driving the market, house sales jumped to 102 with 13 of these homes being for more than R20m.
“In 2022 we really began to see the shifting trend with a significant spike in high ticket sales. Of the 85 house sales in Upper Constantia that year, 20 were priced above R20m, and this year, by the end of September, 21 of the 63 properties sold in Upper Constantia were in this price band.”
“Many of our recent high-end buyers are from Gauteng, KZN and the Eastern Cape, but we have also seen a significant rise in foreign buyer interest. Prior to the pandemic, most of our sales were to ‘swallows’ who bought here to escape the European winters but, many buyers now have the flexibility to earn an overseas currency or maintain European jobs whilst basing themselves in Cape Town, travelling between countries when necessary for work.
“There has been notable interest from UK and European buyers, mainly HNW and UHNW individuals, and the R20 million plus price band has been very active, with a few of sales exceeding R40m. We’re also started to notice interest from as far afield as places like Bermuda and the Cayman Islands.”
Maritz believes that the current moment presents a unique convergence of favourable economic conditions, lifestyle shifts, and market dynamics that make investing in luxury real estate a prudent and rewarding decision.
While it may seem counterintuitive to invest in high-end properties during economic instability, he cites several compelling reasons why luxury real estate remains an attractive proposition for certain investors.
- Value Retention and Appreciation: Luxury properties have historically shown resilience during economic downturns and seem less susceptible to market fluctuations. High-end real estate tends to hold its value better over time and, in many cases, luxury properties continue to appreciate, even in challenging economic climates.
- Limited Supply: The supply of truly luxurious properties is inherently limited. Prime locations, unique architectural features, and high-end amenities are finite resources and this scarcity helps maintain and potentially increase the value of luxury real estate over time.
- Safe Haven for Wealth: During times of economic uncertainty, many high-net-worth individuals (HNWIs) view luxury real estate as a safe haven for their wealth as tangible assets like prime property can offer a sense of security compared to more volatile investment options like stocks and bonds.
- Potential for Higher Returns: Luxury properties often offer the potential for higher returns, both in terms of appreciation and rental income. High-end vacation rentals, luxury homes in exclusive areas or prestigious commercial spaces can generate significant revenue streams.
- Portfolio Diversification: For investors looking to diversify their portfolios, luxury real estate offers an opportunity to spread risk across different asset classes and in different geographical regions. This diversification can help mitigate overall portfolio risk during economic instability.
While luxury real estate can offer attractive investment opportunities, this is not a given and there are risks involved, Maritz advises that potential investors should take the following factors into consideration:
- Market Knowledge: Understanding local market dynamics is crucial. Luxury markets can behave differently from general real estate markets.
- Liquidity Concerns: High-end properties may take longer to sell, which could be a concern if quick access to capital is needed.
- Maintenance Costs: Luxury properties often come with higher maintenance and operating costs, which should be factored into investment calculations.
- Regulatory Environment: Be aware of any regulations affecting foreign ownership, property taxes, or other legal considerations in the target market.
- Economic Factors: While luxury real estate can be resilient, it’s not immune to broader economic trends. Consider how factors like interest rates, currency fluctuations, and global economic conditions might impact the investment and affordability down the line.
- Professional Guidance: Working with real estate professionals like Lew Geffen Sotheby’s International Realty who specialise in luxury properties and who can provide valuable suburb specific insight can be very beneficial for navigating this unique market segment.
“At the end of the day, luxury real estate continues to present compelling investment opportunities for those with the means and appetite for this market segment. The potential for value retention, limited supply, and universal appeal to a global wealthy class make it an attractive option for diversifying investment portfolios.
“Whether you’re looking to secure a primary residence, a vacation home, or a valuable addition to your investment portfolio, now is a very good time to take action,” concludes Maritz.
