Real Estate

17 February 2014

Asia’s Wealth Effect 

New wealth pouring out of Asia is driving up real estate prices in London, Monaco, Hong Kong, New York and other sought-after locations around the world.

Some analysts fear that Asian money could be fuelling a property price bubble in some markets. London home prices are up more than 25% from their pre-crisis peak and by some estimates Hong Kong properties are overpriced by a third or more.

Low interest rates have helped propel premium home prices higher even as values flattened or fell in other areas of the housing market. Home prices in Italy, for instance, were down 6.5 percent in the third quarter of 2013 from a year earlier. Now that the U.S. Federal Reserve is reining in its bond-purchasing program, rising interest rates could take some of the glimmer off of real estate investments.

But regardless of short-term market trends, Asian wealth is likely to strengthen in the years ahead. The distinctive home-buying patterns among the continent’s newly wealthy could create fascinating possibilities if they decide to diversify their real estate portfolios.

Up to now, wealthy Asian buyers have shown a strong preference for homes in urban areas close to commerce and culture; less than 5 percent of their property are in classic leisure locales like ski areas and seaside enclaves.

By contrast, more than 20 percent of the property purchases of well-to-do European and North American investors are in such locations. The slopes of Aspen and the beaches of the Côte d’Azur hold universal appeal, there’s no reason why Asians of means wouldn’t want to invest there, too.

However, they might prefer to create new luxury enclaves closer to home, just as oil wealth helped transform Dubai into a global phenomenon. Either way, opportunities abound.