Why luxury homes are immune to market downturns

Last week, us mere mortals were offered a tantalising glimpse into how the housing market for the wealthiest of the wealthy operates. The Holme, a 205-year-old mansion set in four acres of land near Hyde Park, hit the market for around £250mn. Trevor Abrahmsohn, managing director of Glentree, an estate agent that tailors specifically for the ultrarich, says this is likely to be the most expensive house sale ever.

What can such a transaction teach us about the wider property market? On the one hand, comparing the sale of the world’s priciest home to run-of-the-mill flat sales is like comparing the purchase of a Van Gogh to the cost of paintbrushes. On the other hand, The Holme offers investors valuable insight into what happens as you go up the price curve.

Not surprisingly, those catering for wealthier buyers in the current housing downturn are feeling more upbeat than those catering for the less wealthy. This is true of the likes of Abrahmsohn but also for the housebuilders who sell homes that are priced far above the UK average. The commonality is cash. In a high-interest-rate environment, well-heeled buyers who are less dependent on debt are still able to buy. As a result, we see better prospects for companies such as Redrow (RDW), Berkeley (BKG) and Taylor Wimpey (TW.) who sell more expensive homes than Persimmon (PSN), which is attracting a growing amount of short interest.

The forecasters agree. Savills is anticipating a 10 per cent drop in average UK house prices this year but just a 2 per cent drop for prime central London. Over the next five years, it anticipates 6.2 per cent growth for average UK house prices compared with 13.5 per cent for prime central London.

The same cannot be said for the prime commercial real estate market. In the world of offices, warehouses

The original article can be found here