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Bernice Ross
There’s a tectonic shift taking place in the ultra-luxury market that may leave many of today’s mega-mansions languishing on the market. In fact, the very amenities that many people have valued in the past may make their property worth less, rather than more.
According to famed luxury spec builder Frank McKinney, ultra-luxury clients are still seeking grandeur, opulence and artistry, but now prefer properties that don’t require the hassle and the expense of maintaining a 20,000- to 30,000-square-foot house on massive, oceanfront lot. This may also be the reason that he is billing his most recent build, a $20 million Palm Beach oceanfront mansion to be completed later this year, as his “final masterpiece.”
In fact, McKinney’s most recent build and sale was Salacia, a “mini-mansion” packed with all the amenities you would expect in a $20 million property but scaled down to a very manageable 4,000 square feet. It recently sold for $2.3 million, a record price per square foot in the area.
There’s certainly plenty of evidence for McKinney’s position. The Four Seasons and the Ritz Carlton hotels have been building properties that people can purchase and then rent out during the times when they’re not in use.
A slightly different approach is the “fractional,” where several owners may share a partial interest in the same luxury unit. One version of this is the ultra-luxury vacation club.
My brother-in- law belonged to one of these clubs for many years. He booked destinations worldwide, including a trip for our entire family where we stayed in a beautiful, totally updated villa in Tuscany. The property captured the ambience of the original Tuscan construction, but still offered all the amenities one would expect in an ultra-luxury property, including a personal concierge who stocked groceries and saw to our every need.
The beauty of these clubs for the ultra-luxury client is the wide-variety of destinations available plus the turnkey, concierge service that make these destinations hassle free.
What Factors Are Driving the Trend?
The changes in the U.S. tax laws and the limits on tax deductions are certainly factors driving this trend. According to Mansion Global, however, this issue is not limited to the United States. Double-digit taxes on real estate transactions in places like London and Sydney are cooling luxury markets there, particularly among foreign investors
In addition to changes in the tax laws, there are two other factors driving this trend. First, there is less demand, especially among foreign buyers. Second, prices have been outpacing what buyers are willing to pay. Steep price cuts have hit the high-end real estate market in recent months as interest from foreign buyers dries up, new tax laws come into force in the wealthiest states and buyers realize the market has already peaked.
According to Redfin, 12 percent of homes listed for $10 million or more saw their prices drop in 2018. That’s double the levels of 2016 and 2015. About 500 listings in the United States saw prices cut by a combined total of $1 billion in the second quarter.
What Do Your Luxury Clients Want?
While builders like McKinney cater to those who want a turn-key property that is ready for them to move in tomorrow, “whiteboxing” is the exact antithesis.
“Whiteboxing” refers to stripping the furnishing and finishes down to the bare walls or the studs to create homes that are “designer ready.”
Because luxury buyers normally want something that is customized to fit their taste, this approach is now making these properties worth more, because the buyer doesn’t have to go through the hassle of ripping out and disposing of what’s in the property.
“Now there’s increasing recognition that ‘designer ready’ is exceedingly more attractive than ‘move-in ready’ to the ultra-wealthy,” said Jade Mills of Coldwell Banker in an interview with CNBC.
Many luxury agents opt to show their clients the most luxurious properties available in their price range, but that may not be what today’s ultra-luxury buyer wants. Consequently, it’s important to inquire about the options that best suit their lifestyle, and if there’s a whiteboxing property available that may be of interest to them, show it to them.
Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at Bernice@RealEstateCoach.com.
