Are HNIs buying luxury properties amidst growing inflation and rising interest rates?

Know the impact of rising inflation and interest rates on HNIs in the luxury property market.

real estate market, inflation, interest rates, luxury properties, housing, buy, invest
Impact of rising inflation and interest rates on HNIs in the real estate market.

Luxury markets remain more immune to rising inflation than the overall housing market and affluent buyers are less susceptible to affordability and interest rate concerns impacting many housing markets worldwide. According to a report titled, ‘Perspectives by Forbes Global Properties Annual Report 2023’, affluent buyers rely less on credit, and their buying decisions are typically less sensitive to spikes in interest rates.

The report says affluent individuals typically expect the long-term capital values of luxury property to increase due to scarcity of supply, location, and quality of lifestyle offerings. This still holds true, even in a high-interest rate environment.

Ken Jacobs of Private Property Global noted that “many of Sydney’s most expensive houses are purchased without the need for financing,” adding that when a mortgage is applied to the property it is usually only for tax implications or business reasons rather than any affordability issues. Buyers of prime property are instead more influenced by stock market changes and often finance purchases by leveraging their equities portfolio, meaning that a downturn in the stock markets can affect their mindset to buy property.

Also Read: Indian super-rich own 5.1 residential properties compared to the global average of 4.2 units

In some markets, financial volatility and lack of clarity around economic prospects have resulted in some prospective affluent individuals pausing on a potential property search. “We are seeing a lot of buyers, but also an almost equal number of sellers sit on the sidelines until there is a clearer picture of when rates will level off and the impact on the economy as a whole,” said Barry Cohen of Barry Cohen Homes in Toronto. Cohen added that the luxury segment is not seeing prices decline as much as the market as a whole because of the lack of high-end homes available on the market.

While priorities and motivations of high-networth individuals (HNWIs) and ultra-high-networth individuals (UHNWIs) individuals may have shifted, the preference for ownership has not. “Even though most high-end properties are purchased without financing, HNW buyers are certainly aware of the inflationary impact on the value of cash,” notes Krista Klees of Slifer Smith & Frampton in Aspen, Colorado.

Joshua Miller of in Hong Kong concurred: “As is often the case in times of uncertainty, there has been a “flight to quality” in real estate. The stock market downturn may also be leading buyers to seek refuge in real estate as a more stable investment, particularly if there are concerns of higher inflation in the near-tomedium term.”

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First published on: 26-02-2023 at 07:05 IST
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