By Judith Evans

Luxury homes have morphed into a global currency — a tangible asset with cachet

How much would you pay for a 20,000 sq ft neoclassical mansion close to London’s Buckingham Palace, complete with an underground extension and private formal gardens — not to mention the swimming pool, gym, spa and staff quarters?

Ken Griffin, the billionaire founder of the Chicago-based hedge fund Citadel, settled on £95m. This is the approximate sum for which, earlier this year, he bought 3 Carlton Gardens, a newly restored London home that was the private office of Charles de Gaulle during the second world war. 

But that was a steep markdown from the £125m at which the home had been marketed — and even more so from the £145m the developers had originally hoped the reimagined Nash-era mansion would fetch. That £30m price differential is the price of a David Hockney painting, a gold mine in Russia or the League One football club Charlton Athletic.

Such negotiations are becoming increasingly common as the world’s ultra-wealthy increase in numbers and the market for properties aimed at them becomes larger and more international.

Yet the different dynamics in the “super prime” property market mean developers, agents, lenders and buyers can face an extended wrangle to establish the “real” value of a home, in a market where prices run into eight figures and many of the normal metrics — such as rental yields or comparisons with similar homes — often do not apply.

Neal Hudson, founder of the consultancy Residential Analysts, says the value of super-prime residential property is “a bit like the art market: some things are only worth what the next person is willing to pay for it. There’s not an underlying economic value there that it’s rationally based on, like the percentage yield from an office block in the City.”

The world’s ultra-wealthy, those with net assets of more than $30m, increased by 4 per cent in 2018 to almost 200,000 people, according to Knight Frank’s Wealth Report, which predicts their numbers will reach almost 250,000 by the end of 2023.

People in this bracket increasingly own a portfolio of trophy homes in global cities, agents in the sector say. Griffin is a case in point: his £95m London house, and a penthouse apartment in the city he has agreed to buy for about £100m, add to a portfolio of homes in Miami, Palm Beach, Chicago and New York, including Manhattan’s most expensive home, a new-build penthouse bought for $238m.

Jonathan Miller, a New York housing analyst, wrote in a report: “Luxury real estate has morphed into a new world currency that provides investors with both a tangible asset and a cachet that cannot be found within the financial markets.”

Prices for luxury homes are falling in London, New York and more than 20 other cities globally, according to Knight Frank. But discounts on homes costing more than £10m in London are on average less steep than on less expensive “prime” properties, according to figures from LonRes, a data source; agents say buyers in this market can be less sensitive to price movements than those lower down the scale. 

“People with very deep pockets see something of value and will pay a lot of money for it still,” said Charles McDowell, a Mayfair estate agent.

Garrett Derderian, director of data at the New York real estate agents Stribling, agrees. “What we’re seeing, especially in the Manhattan market right now, is an increasing disparity between the super-wealthy, those buying homes for $30m or above, and the mere wealthy.

“The super-prime market has diverged from the rest, at least in terms of the numbers of transactions happening even as the wider market is softening.”

The figures may be skewed to an extent by completions of new-build properties where sales were agreed in previous years, he notes. But Derderian believes the market has been bolstered by the scarcity value of the properties billionaires look to acquire, such as those overlooking Manhattan’s green space. “There is only so much Central Park,” he says.

Valuing a home in the mainstream market is made easy by the thousands of transactions of similar homes that take place each year. But assessing the value of a top-end mansion is less straightforward, says Jonathan Harris, director at the London-based mortgage brokers Anderson Harris. “It’s all about comparables, but they are trickier when you are looking at higher values. There tends to be fewer of them and much lower levels of activity; the homes can be quite unique. It can be quite subjective.”

The higher the price, the slimmer the field of comparable properties. “Super-prime” or “ultra-prime” homes start at anywhere from £10m to £30m, depending on which agent you speak to; for homes costing more than £50m, the market “is not so much a market as a handful of anomalies,” says Roarie Scarisbrick, a London buying agent at Property Vision.

Valuers may take into account potential rental yields, but only if a buyer is purchasing with a view to letting out the property (not something Griffin has indicated he will do). More broadly, says Dominic Grace, head of London residential development at Savills: “Yield has never been a driver for super prime buyers.”

Agents who buy and sell homes at the very high end say their market does operate, to some degree, logically. Buyers still pay for size, views and extras, whether it be a 10-car garage, full-sized home cinema or Olympic-sized pool.

Philmore Gardens in London’s Holland Park is one of the city’s most exclusive streets. © Alamy Stock Photo

McDowell says location is crucial to a home holding its price over time. A particular street can underpin value in a way that another road close by does not.

Phillimore Gardens, a street of Georgian villas backing on to west London’s Holland Park, is a “blue-chip” street, McDowell says. A seven-bedroom family house there is currently on sale for £30m. The street’s location between Holland Park and Kensington High Street, its freedom from “rogue traffic” and its unusually large homes for the area all play a part in that appeal, he said — against a backdrop of the street’s position in one of the capital’s most exclusive postcodes.

‘Location is crucial . . . a particular street can underpin value in a way another road nearby does not’. (Charles McDowell, a Mayfair estate agent).

Rarity adds to value: few homes can boast of being less than a kilometre from the Queen’s residence and of previously being used by the UK intelligence service to interview potential recruits, like Griffin’s 3 Carlton Gardens.

Values for high-end homes may be falling now around the globe, but they have increased in recent decades. Knight Frank’s Prime Global Cities Index, an unweighted index of price changes that tracks the most expensive 5 per cent of homes in major cities — less rarefied than the “ultra-prime” market — indicates that the typical value of prime properties being traded has risen 59 per cent across the world since 2006, or about 4.5 per cent a year on average, not taking into account costs associated with ownership.

The figures vary significantly by city, according to separate data from Savills, which says price growth can be fuelled not only by domestic wealth increasing but by a “promotion phase” when a city turns outward to become a global destination.

In 10 years, prices for prime homes in China’s Shenzhen have risen 388 per cent and Beijing 322 per cent, Savills said. In Berlin they have more than doubled, rising 118 per cent, and in San Francisco 80 per cent. London prices rose 41 per cent and New York 40 per cent. 

In Manhattan, super-prime homes are dominated by new condominium blocks that have mushroomed since the financial crisis, says Derderian. These now make up the “overwhelming majority” of homes changing hands at the top end.

Residence 14d in 15 Central Park West, Manhattan sold for $29.5m in 2017 © Alamy Stock Photo

The relative newness of these homes makes it difficult to track long-term values, but 15 Central Park West, a complex completed in 2008, gives some indication. Residence 14d in the building sold for $21m in 2007 and then $29.5m, a rise of 39 per cent, almost exactly 10 years later, a rise in value of 3.9 per cent on average each year. 

‘Super prime properties hold their values over time if and only if the property is incredibly rare’. (Lauren Muss, associate broker at Douglas Elliman in New York).

For that price, residents get not only an apartment overlooking Central Park replete with marble and chandeliers, but also a private climate-controlled wine room and access to a 14,000 sq ft fitness centre, billiards room, private dining service and movie theatre.

But this price movement excludes costs, which may be substantial. Another luxury apartment in Manhattan, currently being marketed for $57m, is charged monthly taxes of almost $17,600, while common charges, known in the UK as service charges, come to a little more than $15,000 a month: a fairly typical set of costs, says Derderian. That comes to almost $400,000 a year of costs — and that is before the buyer has even hired their domestic staff. Still, that sum amounts to less than 1 per cent of the property’s asking price.

As new homes tailored to the ultra-rich begin to change hands in the secondary market, more evidence will emerge of long-term pricing in this exclusive market. A similar rising trend is evident in One Hyde Park, an ultra-prime block completed in 2009 in London, boasting a 21m ozone swimming pool, golf simulator, private cinema and dozens of dedicated staff from the nearby Mandarin Oriental hotel.

Nick Candy, one of the block’s developers, says there is “increasing demand from wealthy investors and families to own one of the best addresses in the capital”.

He might be expected to say this, but the numbers bear him out so far, says Scarisbrick of Property Vision. Flats on the more desirable side of One Hyde Park, facing the park itself, sold for £4,000 to £5,000 a square foot in 2007 ahead of completion; they are now changing hands for about £7,000 a square foot, he said.

“The better flats in this building, high up and with a better outlook, have definitely outperformed the rest,” says Scarisbrick.

Other transactions show the dizzying effect of cyclical movements. Another apartment in New York’s 15 Central Park West was bought for $11.6m in 2008 then sold for $21.5m, or 85 per cent more, less than two years later, says Derderian.

By mis-timing the cycle, it is equally easy to lose millions. The Russian buyer of one apartment on London’s Chesterfield Gardens bought the home in 2009 for £19m and sold it recently for £13m, according to an agent with knowledge of the sale — a loss of £6m, before taking account of taxes and other costs.

The current cycle has also caught out a series of developers who carried out refurbishments of period properties, only to be forced to sell them as the market slumped, said Camilla Dell, managing partner at Black Brick, a buying agency.

One home on Cresswell Place in London’s Kensington was marketed for £37.5m but sold for 40 per cent less, at £22m, she says. For super-prime property to hold its value over time it needs to be “the right super-prime, without compromise”, she adds. That means “a very long lease or freehold” and “not just the right address, but the right part of the right address”.

For example, ultra-wealthy buyers will seek out a location such as London’s Chester Square because “you can’t buy anything there for less than £10m, so there’s that recognition of an address that means ‘I’ve made it in life’,” says Dell. But the most valuable homes are on the sunny side of the square, away from the traffic. “Homes on the wrong side of the square will never achieve so much,” Dell adds.

Lauren Muss, associate broker at Douglas Elliman in New York, agrees. 

“Super-prime properties hold their values over time if and only if the property is incredibly rare and offers buyers a true, once-in-a-lifetime opportunity,” she says. “I have been in this business a long time and have seen people overpay for average townhouses or apartments.”

Griffin may have negotiated hard when buying his London house, but he has not said whether he views it primarily as an investment. 

He told the Chicago Tribune four years ago: “When people make a decision to buy a piece of high-end real estate, it’s not just an investment. It’s where they spend time with their family and their loved ones.”

By Patricia Nilsson

Vincent Flynn can see into the future. “I know what shape and size London will be years ahead of other people — that is one of the joys of this industry.

”The company he founded in 1999, Visualisation One, crafts computer-generated interior and exterior images of high-end properties, many of which do not yet exist. Using digital 3D models, Flynn’s team helps property developers show potential buyers what they are bidding for.

With the right mix of artistic and technological flair, a CGI can be so lifelike it is difficult — if not impossible — to tell it is a rendition of something that does not yet exist.

Visualisation One’s images are eerily realistic, with details handcrafted by creative specialists. High-quality work does not depend on fancy software, Flynn says, but on the 24 artists who work at the company, based in Chester. “It is not a mechanical process, but an artistic process,” he says.

Property developers will hand over architectural specifications, even down to the detail of door handles. The visualisation artists then mould 3D models of the building and everything that will be shown within it, from early-stage digital “clay models” that outline the proportions of a room to the leather stitching on a sofa.

The staged image

STEP ONE – An image of a room at Alchemi Group’s Westminster Fire Station development in London (top) was created by Visualisation One. The so-called “white card” image is the 3D model of the room based on the floorplan and the angles that the artist feels best represent the room’s potential.

STEP TWO – The first round rough draft for styling so the furniture visualisers can get an idea of actual scale, proportion and style of items that will feature

STEP THREE – The wireframe – a three-dimensional model that only includes vertices and lines to illustrate the working model before creating the final image, which can be shown to potential buyers.

One image will usually take the company between five and eight days to complete, as accuracy is key. “If you show someone a lovely image of a kitchen, and two years down the line they walk in and the kitchen is different from what they bought [ . . .] then we believe the developer will lose all credibility,” he says.

But a disappointed buyer would be unlikely to make a legal claim citing a misleading CGI, says Laurie Horwood, partner at Farrer & Co. “A developer would make clear you cannot rely on marketing material, and that CGI are indicative only,” he says.

“There are certainly studios that do not mind bending the truth, but the developers that we work with would not tell us to edit out large buildings [that might block views],” Flynn says.

But developers and visualisation studios can run into trouble with CGI. At the end of last year, property developer Fairview New Homes removed a mosque from promotional material of new-build homes in Hornsey, north London. Fairview New Homes declined to comment for this article.

Anna Parry, partner and projects director at London-based CGI studio Hayes Davidson, says the accuracy of computer-generated marketing material comes down to the integrity of the property developer and studio. Aside from tidying up rubbish from streets, her studio will sometimes remove cranes or “complete” a neighbouring property that is being built in order to show the view that will be there. Parry says her team has never been asked to do edits it has not felt comfortable with.

What is more likely is that developers choose to showcase the most exceptional rooms and views in a development in their marketing material, says Alex Oliver, buying consultant at the buying agency Black Brick. “This can be slightly misleading,” he says. “There is no substitute to visiting the site, to get the ambience of the area and ensure you get a unit with a good view.”

An example of how prospective buyers might benefit from visiting a site is London’s Neo Bankside. Some of its residents have said they were not aware the neighbouring Tate would provide a platform for museum visitors to peer into their homes. Native Land, which developed the property, says its CGI marketing material had included imagery that showed the Tate’s viewing gallery, adding residents had not complained about it being misleading.

Flynn believes interactive content will grow in popularity. His studio is already dealing with requests for material, such as digital images, that enables potential buyers to see how a room would look like with different colour schemes, or virtual reality experiences.

Giles Stevens, acquisitions director at luxury developer Elysian Residences, says CGI marketing is particularly important to the company as it targets older buyers, many of whom have never bought property off-plan before. “Communication from us to them needs to build trust and take them over the threshold of one of the biggest decisions they will take in a long time,” he says. “It is a bit of a cliché, but a picture says a thousand words.

”According to Stevens, some studios create work that is “more affordable and less convincing”, adding Elysian Residences will spend between £3,000-£5,000 on each CGI image. “Creating an inspiring and beautiful image of what we are building is crucial,” he says. “If you cannot sell the units at the end of the day, then the whole purpose of property development does not make sense.”

“We are in a challenging market at the moment,” Stevens says, explaining how high-quality marketing material is expected to help developers sell as buyer demand stalls. The company also commissions film walk-throughs or scale models of properties.

In the end, says Flynn, digital artists are helping to sell a dream. His team will even dictate the weather in the worlds they create. Judging by property listings, one could believe the sun always shines.

“We do have rainy days in this world as well. Some clients — particularly architects — like muted imagery,” says Flynn. One of his creative directors, Patrick Corcoran, adds: “Although it does seem to look like the Mediterranean most of the time.”