Luxury Real Estate Market: “Out of the Ordinary”

There are dynamics that make the luxury real estate market “out of the ordinary.”

Real Estate Owner and Developer Anthony Kolich Looks at the Dynamics of Luxury Real Estate.

For most people who dream of living in a luxury home, the phrase “out of the ordinary” refers to upscale features and amenities, like stunning 360-degree panoramic vistas, fully-stocked wine cellars, game and movie rooms, outdoor kitchens, and the lavish list goes on. Long-time luxury real estate owner and developer Anthony Kolich is the Managing Partner and Co-Founder of Empire Residential LLC located in Stamford, Connecticut. He claims there are interesting — and not widely known — dynamics that make the luxury real estate market out of the ordinary. His company owns and manages a portfolio of over 28 high-end buildings and complexes throughout Westchester County, NY, and Fairfield County, CT, he states that these dynamics include:

A Smaller Housing Bubble

Luxury real estate is not immune to housing bubbles. However, these bubbles tend to be less disruptive, and the recovery time is typically faster, than those in the conventional residential housing market. The reason for this is simply that people who own luxury properties are usually better positioned to withstand a dip in the economy, and there typically isn’t too much foreclosure activity. With this in mind, Anthony Kolich adds that luxury real estate owners whose wealth is largely tied up in stocks instead of fixed assets and cash may feel more pressure to sell for less vs. wait for a recovery to kick in and get their desired price.

Anthony Kolich — the luxury real estate economy is driven by foreign investments.

Driven by Foreign Investment

Anthony Kolich claims that while Americans absolutely love luxury homes — and always will — about 50 percent of all high-end real estate transactions involve international investors. Furthermore, the highest proportion of foreign investment comes from five countries: China, the U.K., Canada, Mexico, and India. As such, changes to investment and tax laws and policies in these countries has an impact on the health of the luxury market in the U.S.

Don’t Jump to Price Conclusions

In the conventional residential real estate market, logic and common sense both dictate that the longer a property remains on the market, the more its list price will fall. However, this is not often the case in the luxury real estate market, because many sellers aren’t compelled to sell. If they don’t get the price they want or expect, then they can afford to stand pat on price and wait it out. For this reason, buyers looking at luxury properties should not see red flags if a home has been on the market for several months or even over a year with no downward price movement. While this would beg some serious questions in the conventional residential real estate market, it’s standard operating procedure in the luxury space.

Rising and Falling Interest Rates Typically Aren’t Factors

While most home buyers in the conventional residential real estate marketplace are quite aware of and sensitive to interest rate changes, these fluctuations typically have little impact in the luxury space. This is simply a matter of leverage: many buyers can pay in cash. However, Anthony Kolich notes that some luxury home buyers opt to secure a mortgage for financial management and cash flow purposes.

Property Taxes are a Big Deal

If mortgage rates typically don’t phase luxury real estate buyers and sellers, then what does keep them up at night — or at least, keeps their financial advisors up at night? The answer is something that all homeowners can relate to: property taxes. Comments Anthony Kolich:

“Recent changes to state and local tax deductions is convincing some high earners to look at luxury properties in a lower price range than they would before the changes. It’s certainly not enough of a financial hit to knock them out of the luxury market entirely, but for some it is indeed changing their paradigm, and impacting when, where, and what they buy.”