For Mark Harvey, it was a property in the south of France that brought home the mood of frenzied urgency among super-wealthy home buyers in the pandemic.
The head of estate agent Knight Frank’s international department in London recalls that the buyer, who had deep pockets but a pressing need to find a second home, was targeting a large country estate. The individual was willing to pay a big premium, break price records and even put down tens of millions of euros just to secure the home. The difference was that previous record-breaking deals were all for coastal properties in the glitzy resorts of the Côte d’Azur. “This one was inland and exceeded the highest sale in Cannes,” Harvey says. “It exemplified the search for space and the imperative buyers felt that ‘I must have this retreat, this safe haven for my family’.”
The pandemic brought a reassessment of property needs up and down the price spectrum in Europe, prompting a rush for homes with outside space and the mod cons to support long stays. The trend was no less intense at the top end of the market, where buyers benefited from rising asset prices, low interest rates, bigger savings pots and — often — the freedom to locate wherever they chose.
Yet, as Europe emerges from the thick of the pandemic, prospective buyers and market experts are wondering whether demand will continue to rise for second homes designed for longer stays. Offices are reopening, businesses are preparing for an economic revival and travel options are widening. So, will those who planned to make a permanent move away from cities change their minds?
For Harvey, the “madness” of the Covid-era stampede is showing signs of ebbing as people spend time analysing their property options and applying a more refined rationale to their purchases. “There’s definitely a change in pace afoot — a little curbing of that enthusiasm.”
Hugo Thistlethwayte, head of operations for global residential sales at estate agent Savills, speaks in similar tones about “more intelligent thinking” in the market as buyers show more caution and take more time over their purchases. Last year, there was ferocious competition between ultra-wealthy buyers. “We all know things that came on for £5m and went for £10m,” he says, but he adds that decisions are now much more “thought through”.
“The trends aren’t going away, but they’ll be analysed much more closely. Are the schools good enough? Can I do what I need to do back in London or Paris in only a week a month? What do I want to own in the city to complement my primary home outside? These are decisions people will be making in the next year or two. And that will determine what they are prepared to pay for homes.”
Such considerations have also led to shifts in the types of luxury second homes buyers are pursuing. More are opting for locations with good amenities, as well as the reassurance that others with similar expectations and resources will be present. Some of those considering island purchases in places such as Menorca, for instance, switched to mainland locations such as the Costa Brava, reachable by car without the questions over Covid testing that arise with air travel.
The range of properties wealthy buyers will entertain for a big purchase has also narrowed to those that suit lockdown conditions. In practical terms, this translates into home offices, high-quality kitchens and outside space, and often a spa or swimming pool, as the pandemic spurs people to be more attuned to their physical and mental wellbeing.
For this cadre of buyers, it rules out the idea of picking up a charming, ramshackle gem in remote hills half an hour’s drive from the nearest large town. Anything requiring renovation — the idyll of gentle expat living sketched by Peter Mayle in his books about Provence — is “not relevant”, says Harvey. “Turnkey” properties, which require no improvements, command a premium.
“The second home has got to measure up to the primary residence. You’re not going barefoot — it’s transactional,” he says. “People have become less adventurous. They don’t want to deal with builders for two years.” These factors have conspired to bring the big beasts to the same watering holes. Where a luxury second home was once “lock and leave”, it now needs to be somewhere that its owner can inhabit comfortably for weeks or months at a time.
This is changing the character of places previously seen just as luxury holiday destinations. Ski resorts are a case in point, says Thistlethwayte, pointing to expensive towns such as Morzine, Verbier, Megève, Vail or Aspen. Owners would previously come to ski for a few weeks a year then return to their main residence. “Now they’re becoming more permanent residential communities, with long-term second homes or, in certain cases, primary homes. They are becoming enclaves, though not with a gated environment.”
A Knight Frank report this year on prime French property found 26 per cent of European ultra-high-net-worth buyers had become more interested in a ski home as a result of the pandemic. One chalet in Chamonix recently sold for €19,800 per square metre, more than double the prime average of €8,000. Another in the same location, for sale for £4.8m, has an indoor pool, gym, spa and rainforest shower, and is targeted at sustainability-conscious buyers with its use of geothermal heating technology.
In the US, a prominent lockdown trend has been for New York residents to move to lower-tax Florida. Locations in Europe undergoing a similar shift in living patterns include Quinta do Lago in Portugal or Mallorca in the Balearics. In Alcúdia on the north coast of Mallorca, for instance, a 300-year-old finca is being marketed at €2.45m. More high tech is on offer at a five-bedroom, €14.2m modern villa in Port d’Andratx — with smart home-monitoring technology, a “counter current” swimming pool and a cinema room.
Applications for places at top international schools have been on the rise in many of these places. But some families who hedged their bets during lockdown — moving out but holding on to valuable places at New York private schools, for instance, as classes went online — face a difficult choice as restrictions ease and school life returns to normal.
Ensuring their offspring receive the education they expect in their new location is not something that can be simply solved with money. “It’s beginning to be ‘make up your mind’ time,” says Thistlethwayte. “The schools want to know who’s turning up in September. Yet the availability [of places] where they now want to be based is not there yet.”
Money talks, however, when it comes to securing a desired home. In an age of rising asset values, cash buyers predominate in the super-prime segment. Sven Odia, chief executive of agent Engel & Völkers, says that for properties costing between €2m and €5m, 80 per cent of his clients are cash buyers. “Above €10m, it’s nearly 100 per cent.”
But there are those who prefer to buy with a mortgage. Fiona Watts, co-founder and managing director of mortgage broker International Private Finance, says most of her clients could buy a property several times over in cash. However, she says there are sound financial reasons why they choose to borrow. One is specific to France, where a wealth tax of between 0.5 and 1.5 per cent for non-resident owners is calculated on the value of property assets in the country. Since the tax kicks in on property assets of €1.3m or more — minus any mortgage — a buyer taking a €1m loan on a €2m home will squeeze in under the threshold.
Another is the low interest rates on mortgages across Europe. Those with assets elsewhere may prefer not to liquidate them when debt is so cheap. “If someone is getting a good return on an investment portfolio of 8 to 9 per cent, are they really going to use that money when I can get them finance fixed for five to 10 years at 1.5 per cent?” says Watts.
John Busby, a partner at mortgage broker French Private Finance, says loans on European overseas second homes at the higher end will typically be provided by private banks. He points to one UK businessman who recently bought a €3.79m property in Val d’Isère with a €3.55m interest-only loan at 1.2 per cent, fixed for 15 years — a loan-to-value ratio of 94 per cent. “Private banks can go as high as 100 per cent loan-to-value as long as you place 50 per cent of the loan amount in assets under management,” he says, referring to the requirement for borrowers to place a minimum level of investments with the lending bank.
Watts offers another factor: the aversion of banks on the continent to allow homeowners to borrow against a property they already own. “The banks believe if you raise money on a property you own, you’re in financial difficulty. It’s a very different way of looking at debt from the UK and US. It means it’s not a pot you can dip in and out of.”
Whichever way they choose to buy, the question for buyers right now is whether they would be better off keeping their powder dry in a market that remains highly competitive. Will the imperative for a second home, fit for an extended stay during another lockdown, seem less urgent after the world emerges from the pandemic?
Thibault de Saint Vincent, chief executive of estate agent Barnes, says a luxury second home was once considered as an investment but has become a necessity for his clientele. “Things are coming back to normal, but still you can see long-term change.” This is partly driven by the freedom of choice his buyers enjoy. In the market for €5m-plus homes, 65 per cent of Barnes’ clients are entrepreneurs. “They can work from everywhere,” he says. “They are mobile. Most have a plane. That’s also why they can choose the best places.”
Watts predicts a surge in summer sales, moving through to ski homes in the autumn. “Last July, when everyone could travel, the market went bananas. So many people were desperate to buy. They said: ‘As soon as we don’t have to quarantine, we’re going.’ I anticipate that’s what will happen again.”
Virtual viewings here to stay
One change that looks likely to persist is the willingness of buyers of even the most expensive properties to use online tools in their research and decision-making. Travel restrictions during the pandemic made in-person visits difficult or impossible as buyers were often barred from entering countries.
Thibault de Saint Vincent of estate agent Barnes says his company has advised on 20 property sales this year — including one for €3m — where none of the clients visited the homes before purchasing. The international agency, which has its largest presence in France and Switzerland, has seen a big rise in sales on the French Atlantic coast, in places such as Biarritz, Saint-Jean-de-Luz and Arcachon. This demand partly explains the willingness of people to commit, sight unseen. “One year ago, we had an inventory of 1,200 properties on the coast. Now we have 450-500. It’s booming,” he says.
At Engel & Völkers, another estate agent with a presence across Europe, online inquiries jumped by 66 per cent in the first three months of 2021. Sven Odia, chief executive, says buyers are now much more willing to start their search online but in most cases still want to travel for a physical viewing. During the pandemic, he says, they had fewer of these in-person viewings but, when they did happen, sales were much more likely to go through. “If someone was willing to travel during the pandemic, it showed they had a very strong interest.”
Hugo Thistlethwayte at agent Savills says wealthier buyers now require agents to dig out much more detail than they would previously have been expected to provide. “Buyers looking online want much more information to give them the confidence to proceed with a deal.” That includes nuggets on other property sales, tax, the political situation and bylaws, but also access routes, schools, hospitals, restaurants and supermarkets — as well as the streamed “showarounds” that allow remote online viewing.
He points to the W Residences development in the Algarve, Portugal, where the agent sold 17 properties starting from £500,000 during lockdown, at a time when most travellers from the UK were barred from entering. “Virtual viewing has become not just accepted but expected.”
This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment