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Special Report

Luxury Property - May 2012

Published by FTAdviser | May 14, 2012

In 2007, property investors had a roller-coaster ride. Those who failed to exit before the crash were stung by plummeting values and dropping rental yields.

As a result, many surviving investors gravitated towards the high-end, prime or luxury market, particularly in coveted areas with low supply such as central London. But after some eye-popping recoveries in some areas in the last few years, is prime property still the safe haven some investors –particularly the super-rich – consider it to be?

According to Knight Frank’s Italian department, in 2011 the average price of luxury homes fell by roughly 5 per cent in Tuscany and Umbria. Although the regions are located in Italy, which is undergoing a financial crisis, they are also two of Europe’s most established second home markets.

Chianti – with its archetypal view of cypress trees and rolling hills with country homes and farmhouses nestled among them – is one of the most popular locations for overseas buyers, according to the Knight Frank team. Beyond Chianti the Val d’Orcia, which extends from the hills south of Siena to Monte Amiata, is also attracting significant interest, along with Cortona to the east and the medieval city of Lucca to the north-west.

Most purchases in these areas are lifestyle driven, motivated in particular by the region’s climate, landscape and history. International buyers are looking to sample ‘la dolce vita’ by enjoying the region’s exemplary food and wine and by absorbing the culture, Renaissance architecture and relaxed pace of life. The disadvantage of such qualities, however, is that they do not make the homes essential purchases for everyday life.

Even in less leisure-oriented areas, where buildings have a more obvious and consistent use, some authorities are using artificial means to lower the price of residential property.

In Hong Kong, Leung Chun-ying, who in July will take over as the territory’s new leader, has vowed to increase the supply of housing to quell public discontent over widening gaps in wealth.

Hong Kong remains the world’s most expensive place to buy a home, and prices have gained more than 78 per cent since early 2009 on record low mortgage rates and an under-supply of new units.

Closer to home – and in spite of the fact that properties worth more than £2m are now subject to 7 per cent stamp duty, a rise of 2 per cent from the Budget in March – the number of transactions in the UK remains largely unaffected.

There were 1,518 property sales worth at least £2m in 2011, a rise of 5 per cent from 1,442 sales in 2010 and the highest number in this price bracket since records began in 1995. Purchases of properties topping the £2m mark were also 2 per cent higher in 2011 than at the peak of the housing market in 2007.

In addition, the number of properties selling for more than £5m rose by 22 per cent from 128 in 2010 to 156 in 2011, providing further evidence of strength at the top end.

As economic growth slows, however, these figures might yet represent another peak in the luxury market.

Jenny Lowe is features editor at Investment Adviser

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