Super-prime property becomes safe haven

In difficult economic times high-end property might be worth a look, writes Sergio Burns

Author: Sergio Burns
November 20, 2012

These are not the best of times for investors. Sheltered harbours in which to anchor assets, as we search for wealth generating opportunities, seem difficult to find. Volatile equity markets, a eurozone still in intensive care and with investor faith in bonds on the wane, attractive, desirable options for safeguarding cash are proving elusive.

Stargazing financial analysts, however, have observed signs in an economic sky which make luxury prime and super-prime property an improving bet. The message, as they say, is not always in the stars, but in the data.

Increasing numbers of global multi-millionaires and billionaires, with the resources to pay cash and a penchant for buying several residences in desirable locations around the world, augur well. According to Forbes, the US now has 425 billionaires, while Russia has 96, China 95, India 48 and the UK 36. Liquidity, in the form of ready cash, avoids fluctuating (often crippling) interest rates on mortgages which, in turn, inflate the real cost of purchase and place a drag on profit margins.

Couple this increasing demand with a growing scarcity of supply, as well as the aforementioned search for wealth generating opportunities, and the signs are favourable.

But, how much of a safe haven is prime and super-prime property?

In 2002, according to Knight Frank, it would have taken 24,000 ounces of gold to buy super-prime in London. A decade later less than 10,000 ounces of the metal would buy the same property. Gold has also risen by 802 percent since 1976, and a very lucrative 89 percent since 2009.

Super-prime, by comparison, has climbed in value by 2685 percent in the same 36 years (prime property 2576 percent in the same period) which, either way, is a pretty impressive return on any money securely nestled in high end property over this period. Add to this a steadily upward trend and we have an attractive proposition which is still moving in the right direction.

Between the bottom of the market, the first quarter of 2009, and today, Savills record that while prime property in London climbed 53 percent, super-prime outstripped this with a 58.4 percent increase.

“We’ve got a huge amount of demand coming in from all parts of the world” Ben Morris, director with Savills, told me. “And, because of that you know there is only a finite amount of property available to meet a growing demand. Supply, generally, in prime areas of London is at a minimum when demand is arguably higher than anywhere else, certainly in the UK if not in the world.”

Rising prices, Morris is also confident, will continue. A view supported by the findings of research by international real estate advisory company CBRE. The Los Angeles headquartered organisation, revealed that the value of London super-prime had increased 12.6 percent in 2012 to November, as investors moved to less exposed positions.

CBRE also placed London as the super-prime capital of the world with Hong Kong in second place and New York – the pre-crisis leader – back in third.

London has become the focal point of this global market, but not exclusively. While developers are planning nearly 15,500 new luxury residences in the UK capital, at a cost of £40bn over 10 years, there is also considerable activity in New York and Switzerland, as there too developers look to hook into this upward trend.

In tight economic times, the need to invest safely has created a growing demand for super-prime property. With demand outstripping available supply, prices have been pushed up and developers pushed into action. This, of course, can only stimulate growth and generate employment, and while gold might be as safe as it can get, high end luxury property is not to be overlooked.

Super-prime, though not quite keeping pace with gold, is, nevertheless, a good and steady bet at the moment, for anyone looking to ride out the storm. In addition, it has the instrinsic value of being functional, and, whatever you say or think about super-prime, you certainly couldn’t sleep or have guests round to dinner in a gold bar.

  • jerryhelmut

    Too true. I have a couple of properties, one in The Hamptons where i winter, and one on Cape Cod. If i traded these in for gold bullion then my wealth would indeed be greater, in terms of weight, than had I not. Conversely, should I need a place to stay, and I built a dwelling out of gold bars, then i fear my net wealth would decrease pretty darned rapidly as undesirables removed my building from around me as I slept. Two sides of the coin.

  • John Dillett

    When Dick Whittington heard of the great city of London, where the
    streets were said to be paved with gold, he set off to seek his fortune in the
    city. The article makes an interesting analogy
    on how much property in London costs in ounces of gold. Nowadays it would be literally
    correct if he was going there to invest in prime and super prime market. Luckily
    he became Mayor of London so maybe he could afford it.


  • The fact that the USA has so many Billionaires speaks well for the free market system.  However, a better indicator of a nation’s health might be what percent of adults own their homes.  Because as we should know economies grow from the middle out in both directions.  A strong middle-class is the true strength of any nation.  Billionaires are a dime a dozen because greed breeds more greed in many cases.   Some truly amazingly rich men and women use their money to only do good. That gives the entire country  a role model.  People like Donald Trump don’t count for much here.  It has always been true in America that what you had didn’t matter so much, it is more important what you do.  I am sure that is true in other countries as well.

  • Unequivocally true!  Well said.

  • 1404nutty

    Yes indeed! Makes one think of post-war times when similar happened although perhaps on a less grand scale. Well written and of use to us all whether we dwell inside or outside the financial world.

  • I enjoyed this article, which I felt made me more aware of this phenomenom and explained it succintly. I had not really considered this subject before reading the article.

  • HB26

    Very interesting. I usually get very confused when trying to grasp the current financial whirlwind we are facing but this has helped me to understand a very complex issue.

  • Fred Best

    Well done for having the courage to bring this to our attention – the statistics are very interesting and this terrific article has helped open my mind as regards the real `options` out there.  Thank You !