Flight Capital, Bubble Finance And The Housing Price Spiral In Leading World Cities

LONDON — Uber-Richskis (rich Russians) is the new byword for opulent dwellers in some of the most exclusive neighborhoods here. A continent away in Vancouver, the number "8" — a symbol of good fortune in China — adorns windows of real-estate brokers. More than 3,000 miles to the south of that Canadian city, Miami has become the housing mecca for Latin American millionaires seeking a haven from political and economic chaos that threaten their wealth at home.

A handful of elite cities around the world have increasingly become magnets for residential investments from super-rich foreigners looking for safe places to park their fortunes.

They invested approximately $25 billion in cross-border residential real estate in 2014, according to Chicago-based Jones Lang LaSalle, an investment management company that specializes in property.

It has also distorted home prices in some city centers beyond the reach of all but the world's wealthiest individuals at a time when 330 million urban households worldwide live in substandard housing, the McKinsey Global Institute estimates. For millions of middle-class — and even upper-middle-class families — urban life in these cities is out of the question.

"The international picture is very obviously what I call 'flight money,'" said Matthew Montagu-Pollack, publisher of the Global Property Guide, an online resource for people looking to purchase homes abroad. "This money can be associated with anything from Chinese parents that have kids in college in the USA to those that don't feel secure in their home countries," he said.

"We are not in the 1940s anymore, where if you were Jewish in Germany you probably didn't have an account across the border. Now, anyone with money who lives in (Russian President Vladimir) Putin's Russia or China or in the Middle East — where it's possible the Islamic State could overwhelm the Gulf suddenly — will keep some wealth outside," Montagu-Pollack said.

He said it is difficult to quantify how much foreign investors are driving up residential property prices because of scant data, but that doesn't mean it's not happening.

In the past year, residential property prices in prime locations favored by foreign investors rose sharply — 19% in New York, 15% in Bali and Istanbul, 13% in Dublinand 11% in Sydney, according to Knight Frank, a London-based real estate consultancy with clients spanning the globe.

From 2008 to 2012, average house prices in Hong Kong — ranked as the world's least-affordable city for housing — rose more than 117%, according to the Global Property Guide. The average property in London costs $750,000, a one-year jump of 19%, according to Britain's Office for National Statistics.

"One of the biggest trends we are monitoring across pretty much all the markets we focus on is the ongoing globalization of demand for property," Liam Bailey, Knight Frank's global head of research, wrote in the firm's 2015 report on global wealth. That means those with more modest incomes are driven out, he said.

"New demand is accused of hiking prices, as well as creating market access and affordability issues for local residents," Bailey wrote. "The counterargument, that new investment flows lead to new supply in precisely the places where demand is highest, appears to be falling on deaf ears."

Separate data Knight Frank provided to USA TODAY illustrates the growing divide between the price of residential property in prime locations in select national capitals vs. average prices in the rest of those countries. It shows price rises in metropolitan areas far outpacing advances elsewhere.

 In many instances, investors from Asia are behind the globalization of residential real estate in prime locations, whether New York or Panama City. Knight Frank said that in 2013, 90% of residential developments in the United Kingdom were funded by investors in Asia — chiefly China, Singapore and Hong Kong. That same year, Asia accounted for 62% of prime residential investment activity in the United States and 74% in Australia.

As capital and people increasingly traverse the globe, residential property markets are caught up in the maelstrom.

Around $3 trillion of the world's $152 trillion in private wealth is tied up in owner-occupied residential properties, according to the Boston Consulting Group. Sotheby's, the art broker, calculates there are 211,275 ultra-high-net-worth individuals (UHNWIs) on the planet — defined as those with $30 million or more in net assets. And 79% of them own at least two homes.

Since 2003, the number of people with $100 million in assets has risen 62%, according to WealthInsight, a research and analysis firm. The tally of billionaires has shot up by 80% to 1,682. Asia alone has 41,114 UHNWIs — on a par with North America. By 2023, that number, particularly from emerging markets such as China, is expected to rise by a third.

"Access to high-quality, truly affordable housing is set to be a dominant political theme globally for the next decade," Knight Frank's Bailey wrote.

"As The Economist magazine noted earlier this year, 60 million rich-world households spend more than 30% of their income on housing; in the emerging world 200 million households live in slums. With rapid urbanization, these numbers will only grow."

 Source: Where world's super-rich drive residential prices soaring

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