Luxury real estate had a strong 2021, with demand outstripping supply and the number of affluent sellers interested in entering the market worldwide over the next three years increasing substantially. The luxury world is expected to keep chugging along at a quick pace into 2022 but should also continue to stabilize, according to Luxury Portfolio International’s (LPI) State of Luxury Real Estate Report 2022.
Mickey Alam Khan | Credit: Business Wire
“After a record-breaking year in luxury real estate, we anticipate that some balance will be restored to the market,” Mickey Alam Khan, president of LPI, said in a statement. “It is important to view the luxury market over a trajectory of several years, noting that half of 2020 was in paralysis due to the pandemic. The red-hot market that began in the latter part of 2020 continued into 2021 and will continue a positive trajectory into 2022.
“The difference will be that there will be more luxury sellers in 2022 than in 2021,” Khan added, “and while there will be fewer actual luxury buyers, it is still a seller’s market.”
For this report, LPI analyzed data from individuals in the top 1 percent to 5 percent income brackets across 20 different countries spanning a total of 4,673 interviews among the global affluent.
One of the report’s top findings was that luxury buyers are increasingly concerned about having an environmentally sustainable home that will last for generations. In fact, three-quarters of luxury buyers are choosing their next home with this quality in mind, and out of those buyers seeking sustainable homes, 71 percent are more likely to consider the home a legacy home to be passed down through their family.
Another notable finding from the report is that FOMO (Fear Of Missing Out) is hitting 26 percent of luxury buyers in a big way as it relates to buying a home, from feeling like a buyer has missed the opportune time to purchase before prices skyrocket beyond affordability to merely getting one’s finances in order in advance of a major purchase.
In the past year, luxury buyers have adapted to the pandemic. In 2021, the top trend was finding a home suitable to families working from home, but moving into 2022, just 27 percent (still, a significant number) of luxury buyers have named it a “significant concern.” Those buyers are seeking out homes with distinct spaces for working, entertaining and relaxing.
Interest in real estate purchases among the affluent are also up 33 percent year over year, with LPI’s report noting there will likely be a backlog of buyers from 2021 that overflow into 2022.
With home prices at record highs, the number of luxury homeowners who have become interested in selling over the course of the next three years is up 32 percent year over year (or an additional 1.2 million homeowners), while 6.4 million luxury homeowners are looking to buy a new home.
LPI noted that the increased number of luxury sellers will help bring the market closer to equilibrium in 2022. Just within the last year, the total percentage of the global affluent interested in buying luxury real estate declined from 34 percent to 20 percent. At the same time, the percentage of affluent interested in selling luxury real estate has increased from 13 to 16 percent. Therefore, while it remains a seller’s market, the gap between buyers and sellers is lessening significantly.
Across the globe, demand for real estate is poised to increase among the affluent in 2022. In Europe, interested buyers grew from 19 percent of the affluent in 2021 to 39 percent in 2022, while in Asia/Pacific, affluent individuals interested in buying increased from 30 percent in 2021 to 37 percent in 2022. In North America, 21 percent of the affluent wanted to buy in 2021, a percentage which rose to 25 percent for 2022. Meanwhile, a whopping 46 percent of individuals surveyed from the Middle East expressed their desire to purchase real estate in 2022.
Despite headlines about homeowners fleeing cities over the last year and a half, LPI’s report showed that cities remain a strong draw for luxury buyers. Fifty-five percent of luxury buyers plan to buy their next home in a city, and 77 percent plan to buy a home within commuting distance to a city center.
Notably, the report also found that a greater number of the affluent class is looking to buy real estate valued under $1 million, signaling a new class of entry-level luxury buyers from the upper-middle class who may have delayed buying during the pandemic for various reasons. This trend has led to a rise in entry-level luxury buyers in the last year, from 39 percent to 44 percent, looking to purchase within the $1.0 to $1.9 million range.
“This democratic luxury-for-the-many effect is most pronounced in North America and less so in Asia Pacific and Europe/Middle East, where the wealthy class tends to skew toward relatively small groups of people with very high concentrations of wealth,” the report notes.
Still, despite these confident insights for the luxury market overall going into 2022, 75 percent of luxury buyers reported concern that their discretionary spending power might best put to the test in the near future, due to increased taxes, slower economic growth and currency devaluation. But on the whole, LPI maintained a positive outlook from the report’s findings.
“The pandemic madness that drove us to an over-heated market is being normalized,” Khan said. “Demand will remain strong, and a healthy, new normal in luxury real estate will start to take hold in 2022.”
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