When investing in real estate it is important to choose your properties with the utmost care and attention. Some investors believe that putting money into large quantities of low-end properties is a more profitable option than investing in a few upscale ones, but this may not be the case. Knight Frank's Prime Global Cities Index states that luxury real estate prices have increased significantly over the last decade, possibly due to increased travel and globalised trends – LA, for example, saw a 14% increase in luxury property prices between 2012 and 2013, while New York and Tel Aviv experienced a 10.4% and 12.7% increase respectively.
Due to the high-end nature of luxury properties, investors will find that their potential for returns is far more secure than it would be with non-luxury real estate – this is due to high levels of property maintenance, desirability of the property itself, prestige of location (luxury properties tend to be found in luxury places), access to attractive amenities, and of course exclusivity. Since low-end properties do not share any of these advantages, their returns can often be small or non-existent.
It is also true that luxury real estate is far less susceptible to price fluctuations than its lower-end counterparts. While non-luxury real estate can be hit by slumps in prices (as a result of everything from decay and dilapidation to areas becoming less popular), luxury real estate tends to retain its desirability – an item of extreme luxury often preserves its worth even when the economy around it declines. One of the key advantages that also creates stability in the luxury real estate market is again exclusivity: there is necessarily only a limited number of luxury properties that exist worldwide, which means that their prices are not likely to fall due to limited availability.
Seeing as high-end housing tends to be found in high-end districts, luxury properties also have a far better chance of benefitting from tourism and development than non-luxury properties. Miami, for example, saw a 15% increase in visitors to the city between 2012 and 2013, meaning that its upscale real estate will have gained more exposure and more popularity as both living quarters and holiday rentals. Miami is also currently experiencing a development push in some of its most popular districts, with new restaurants, hotels and shops being built – there’s even going to be a new contemporary art gallery in 2017. This will provide the city’s high-end real estate with yet more amenities to add to their properties’ profile, thus increasing their value. This pattern has a tendency to repeat itself in the majority of desirable cities.
The final point to make is that luxury real estate is a perfect investment for long-term gains. As an asset, the stability and constant popularity of these properties means that their value often builds over time and at a steady rate – non-luxury properties, on the other hand, frequently experience much more volatile changes in price that renders them only fit for short-term investment (at best). One major advantage of investing in luxury real estate with Bricksave is that you can invest small amounts into multiple high-end properties, thus diversifying your investment and increasing your chances for capital gains in the long-term.
by Bricksave CEO Tom de Lucy
August 19, 2016
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