For centuries, home ownership has been considered a proven strategy to build wealth. Indeed, it has entered the investing language as being “safe as houses”.  However, it is also true that as an asset it can be described as “slow and cumbersome as houses”. Property has historically been illiquid; transactions involve complex legal processes involving deeds and titles, different language and customs constrain demand to a local market, with the process carrying high commissions to middlemen and notaries. But that has changed.

Property as a build and store of wealth is transforming as it responds to the combination of market forces, such as conditions in the capital markets, investor demand, new fintech companies and astonishing feats of design and engineering.  If you want the evidence, then just look up!

The best example, although not the only one, is the wealth corridor on 57th Street Manhattan. Here the skyline has been transformed by the astounding “Supertalls” of 432 Park Ave., 53 W 53, 111 W 57, One 57, and Central Park Tower; collectively they make what is now referred to as “Billionaires’ Row”. These breath-taking buildings rise 300 meters into the sky on a baseplate often no bigger than 18meters by 18 meters. But these are buildings shaped as much by financial architecture as structural engineering. They are the market response to the demand for an entirely new asset class of luxury real estate with transactional liquidity.  Their shape and size, the attention to design detail, the removal of ‘common’ areas and the guarantee of ‘Air Rights’ that maintains spectacular views all build liquidity into this asset. As such, they are presented as the new safety box in the sky – an asset offering a safer haven than stocks and shares and producing more growth than bonds. However, such advantages come at a very high price, and these apartments have been the preserve of the super-rich with the ability to buy a whole unit often at a price over $100M.

But where there is a hot market there will always be innovation and the clever minds from the Fintech industry are beginning to open the advantages of this new asset class to all qualified investors. For example, companies such as Estating, a property investment platform that has designed a fast and secure method to securitize such luxury real estate assets. This method allows investments in smaller portions ($50,000) and so the chance to pick the properties that suit an investor’s risk/reward profile and to build a portfolio across many different leading cities around the globe. This clever vehicle increases the liquidity of this opportunity and is accelerating the growth of this new asset class. Investors can buy and sell from any country in the world with confidence avoiding most of the fixed costs and problems of local laws and taxes. Indeed, this makes the asset so liquid it becomes as easy as investing in stocks and shares and therefore opens the opportunity for luxury real estate to be included in the management of wealth by all independent financial advisors and their qualified investors. Estating’s process ensures the viability of the assets through a rigorous due diligence process, presenting the financial advisor with all the details at the tap of a button, lowering the barriers to entry and allowing the transaction to be made from inside the client securities account.

As a result, we anticipate the market footprint of this new asset to widen from the exclusive plot of the super-rich and with that the increase in the development of luxury properties as stores of wealth. Developers and architects are already responding by constructing more desirable and more liquidly transferable assets – buildings such as the Legacy Miami Worldcenter and Ritz- Carlton in Miami, the Yoo in Berlin and the Four Seasons in Madrid.

Luxury real estate is the new safe haven and store of wealth. As markets roil over Covid-concerns, Quantitative Easing rises inflation to records levels, and secure assets show small and sometimes negative returns real estate is poised for another record-breaking year. In 2021, property assets across the US rose on average 18%, with this momentum riding into 2022 and expected property values to continue to rise another 9% YoY. With developers working to supply that demand and the new financial vehicles connecting it to the untapped demand in the wealth management system the market is set to create a new asset class that will rise as fast and high as the properties on Billionaires’ Row.

 

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