Speculators Disappear as Luxury Investments Lose Their Luster

Focus: ALTERNATIVE INVESTMENTS

Steven Pomeranz Image Steven Pomeranz Host, The Steve Pomeranz Show

Andrew Shirley, the editor of this report, said, in effect, that across most sectors of the luxury investment universe buyers are becoming more cautious about paying too much for their acquisitions.

In fairness, it’s not all bad news for all luxury investments. Luxury company stocks are beating average market returns and there are still occasional stories of moon-shot bids at art auctions.

For example, a Basquiat just sold for $110 million at auction but, by and large, the trend is in a downward direction.

One asset class that is getting punished especially badly right now is high-end real estate, from luxury condos to mansions and extravagant city apartments.

There’s an oversupply of luxury realty inventory in cities like New York and Miami and across the country.

What defines the luxury and ultra-luxury price range varies in different locations, but the story is largely the same: The speculative buyers and foreign investors who have been responsible for much of the demand in luxury property have largely disappeared.

The recent strength of the dollar has made investing in U.S. property far more expensive for Brazilian, Chinese, and other foreigners, and they’ve responded by retreating from this sector of the market. The bottom line is that luxury real estate markets around the country now appear to be “correcting”—which is usually defined as a 10% decline—and it remains to be seen how much further prices will have to fall to bring the buyers back.

Some realtors specializing in luxury property in Miami are saying that the market is even worse than the crash of 2007.  

Not only that, but there are many who believe that things will have to get worse before they get better.

 
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