Jay Digiulio: Luxury Real Estate Market will continue to flourish

As the global economy continues its recovery, record sale prices of luxury real estate continues to astound, claims Jay Digiulio, President of Boutique Club International.

The statistics certainly seem to back him up. A report on sales trends in the luxury real estate market, by Oshan Realty shows that 1,372 luxury homes went into contract in New York last year, for at least $4 million, the highest amount since the company began collating records in 2007. The figures were up 70% from 2012’s total and totaled almost $10.9 billion in sales.

Real estate trends are driven, by global trends in capital movement and capital management, as well as political trends. Stock exchange fluctuations, international financial factors and variations all affect real estate values and investment patterns, particularly in the residential market.

The International Monetary Fund paper, “Managing Real Estate Booms and Busts” stated “Real estate is an important, if not the most important, storage of wealth in the economy. Additionally, the majority of households tend to hold wealthin their homes rather than in equities.”

The luxury real estate market is somewhat isolated from political and financial trends, as these apprehensions generally do not factor into the purchase of a trophy home. Jay Digiulio considers those processes are more affiliated with supply and demand.

“Like the financial markets, the real estate market operates under the law of supply and demand. And by nature, there are a limited number of luxury properties for sale at any given time in a particular market. That limited inventory alone can help drive up prices as multiple buyers bid on a single luxury proper.”

Digiulio has witnessed the boom first hand. His company, Boutique Club International, is an international consulting group, which specializes in working with owners in the design, development, and sales and marketing of luxury resort projects

With such a limited inventory, it leaves very much a seller’s market. Last year in Manhattan, after a lull in new developments for several years, several new luxury condominiums aimed at the elite, were opened and bought up at record prices, proving Jay Digiulio’s assertion correct. The most expensive contract for a new development last year was a penthouse at 212 West 18th Street, with an asking price of $55 million — a new high for downtown condo sales.

While the market for luxury items is showing a great increase in the US, a 2013 report by Bain & Company, “Luxury Goods Worldwide Market Study Fall 2013”, claimed that overall worldwide luxury goods spending would grow by 2% over the course of 2013. Furthermore, the report states that were it not for the significant fluctuation in currency exchange rates, the increase in luxury goods spending would have been 6%. The report considered that luxury residential real estate values would likely follow luxury goods and not the general housing market.

The amount of billionaires in the world continues to rise exponentially: Forbes listed 322 billionaires in 2000; the magazine today lists 1,641, with a combined net wealth of $6.4 trillion. These high net worth individuals are attracted to global urban centers, the meccas of globalization, economic development and technology, where knowledge, capital and culture intersect. The prices for the ultra-luxurious homes that they are seeking tend to be a secondary cause for concern.

As Lynne Sagalyn, Director of the Paul Milstein Center for Real Estate at Columbia Business School asserts, “The globalization of business opportunity, industrial fabrication, and cultural attractions has created a set of premier cities that functionas a network. These global city centers have distinctive lifestyle attractions and ease of business attributes that make them magnets for an increasingly mobile society of business professionals and HNWIs. Small in number these global cities tend to relate more to each other than perhaps other cities within their home country.”

Although development of ultra-luxury condominiums continues apace, the market for those homes is also rapidly increasing, as the wealthy get wealthier.

One such luxury real estate venture has recently opened its doors in the historic Edgartown area of Martha’s Vineyard. Harbor View Captain’s Cottages offer owners hassle free and maintenance free services, with full access to luxury amenities. Ventures of this type are another attraction to the elite, who continue to fuel the luxury real estate boom.

With more high net wage earners continuing to look for the finest properties, and with record prices frequently being reached, the healthy situation at this top tier of the market looks set to continue. As Jay Digiulio contends, “Luxury is not just about the real estate it’s also about the life style experience”.