Future luxury buyers expect to inherit a substantial amount of wealth in their lifetime which will fuel their preferences and purchasing power. THE WORLD OF WEALTH CONTINUES TO GROW AT BREAKNECK SPEEDS. While this is a global phenomenon, it is the United States that leads the charge as the world’s powerhouse in mega-wealth creation. In 2017 alone, personal wealth in the U.S. grew by $8.5 trillion, followed by China with $1.7 trillion in growth.1 The wealthiest Americans have benefitted the most in the post-recession economy; the top 1% hold 39% of the assets. Along with the growth in wealth, America is enjoying a surge in the number of affluent households and, in just one year, added 745,000 households2 to the ranks of families earning at least $250,000 in gross annual income. This represents an 18% increase, bringing the total to nearly 5 million affluent U.S. households (roughly, the top 4% of households). Bottom line: there are more affluent consumers now, and they are wealthier, than ever before. The coming year(s) also represent a unique moment in time. With phenomenal gains in the stock market, combined with new legislation and exemptions in the estate tax that favor wealthy families, we expect this is just the beginning to what could be a boom time for luxury real estate. We already see the effects today as the majority of buyers seeking $1 million-plus homes are 25–49 years old and have inherited or plan to inherit significant wealth. This buyer is a mature adult, on average, 37 years old, married and have young families. Their careers are solid and their future prospects are high. We are witnessing the rise of The New Aristocracy. How much,* if anything, do you expect to receive from inheritance from your parents, grandparents or other family members? New Aristocracy: Ages 25–49 | Luxury Loyalists: Ages 50+ It is this consumer who has begun powering the $1 million-plus real estate market, more so than their older counterparts, the 50-and-over Luxury Loyalists, who historically have driven the high end of the real estate market.3 While the older group is very wealthy, and is the dominant force in overall luxury spending today, their plans for real estate are for downsizing and economizing. Luxury Portfolio International® and YouGov partnered to create a survey of real estate demands and expectations among high-net-worth consumers in America. The results of this survey explore the wants and needs of these two important buyer groups. 1 Credit Suisse Global Wealth Report 2017. 2 Current Population Survey (CPS) Annual Social and Economic (ASEC) Supplement. The CPS is a joint effort between the Bureau of Labor Statistics and the Census Bureau. 3 Based on 2017 NAR, plus existing homes Census statistics of $1M+ sales, approximately 77% buyers were 24–49 years old vs 23% buyers were 50+ years old. THE NEW ARISTOCRACY The group we refer to as The New Aristocracy are high-net-worth consumers aged 25–49, who consist of both Millennials and the younger portion of Generation X. This group will ultimately be larger in number and greater in economic power than the wealthy in the gilded age of the Rockefellers. Beyond that, they will have a lifetime of experience living a luxury lifestyle, as they are the children of the very wealthy. . Inherited Wealth The New Aristocracy is more likely to have grown up in affluent and wealthy families and stands to inherit about $4 million on average with 58% expecting to inherit more than $1 million. Interestingly, this is a largely U.S. phenomenon, as most wealth worldwide has been earned in the lifetime of the individual rather than inherited. What Does It Mean for Real Estate? Younger buyers who have grown up with wealth have greater exposure to luxury, are more educated and aware of their likes and dislikes. They know brands, they demand quality and they are familiar with real estate. Inheritance is often a financial windfall that helps with down payments or enables buyers to purchase with cash. Between 2011 and 2014, the transfer of million-dollar-plus gifts increased by a factor of 20 compared to 2007–2010 (which was in line with historical norms). As a result, half a trillion dollars — in million-dollar gifts — have been transferred already, and it is only the beginning. Trends The New Aristocracy is looking to spend at least $1 million on real estate in the next one to three years and is primarily looking to reside in an urban area. Many of these younger buyers are looking to purchase larger homes over 7,500 square feet, and a surprisingly large percentage of buyers are looking at 20,000 square feet or more. In which one type of location do you want your next personal residence? Urban 54% Suburban 38% Rural 9% These buyers favor classic styles that house modern amenities such as smart home capabilities and state of the art security systems. The exterior of the home will cater to their desire to blend in with other homes in a traditional affluent neighborhood while modern amenities will allow them to control the home with the push of a button and ensure security for themselves and their growing families. Top 5 “Essential” Next Home Features 1 Near Restaurants and Dining Options 2 Has Outdoor Space, such as a Patio or Terrace 3 Multiple View Surveillance Cameras 4 Monitored Security System/Alarm 5 Commercial Grade Kitchen Appliances THE BOTTOM LINE The million-plus homebuyer of the future is looking for a private, secure area they can call home. In fact, they are seeking this sense of security in all parts of their life. For the Luxury Loyalists, the home is all about comfort: security, relaxation and privacy are top emotions associated with the home. A strong sense of accomplishment comes with it. The New Aristocracy feels this comfort as well, but they add feelings of intelligence, sophistication and excitement when thinking of their home. For them, it reflects who they are as people as much as it is a place to live. LUXURY LOYALISTS The Luxury Loyalists are high-net-worth consumers over 50 years old who are in the market to buy a personal residence for $1 million or more within the next 3 years. These are the traditional luxury home buyers who have historically made up the bulk of luxury consumption in the world. These buyers are now at a stage where their priorities are shifting from raising a family to preparing for the next chapter in life. Transferring Assets to the Next Generation Luxury Loyalists want to see the money that they pass down to the next generation to be a source of joy for their heirs. This means heirs have a chance to live with a portion of their inheritance while the earner is still alive. These benefactors have the opportunity to teach and guide their heirs before much of the estate is passed on. More Millennials expect to inherit, compared to Gen X and the Baby Boomers, and they stand to inherit more money overall than the previous generation. What Does It Mean for Real Estate? Luxury Loyalists are thinking long term. They want to ensure their family is well protected financially and focus on adding quality to their lives for the years to come. Families have crafted a moat (primarily of cash) that protects their castles and their peace of mind. These buyers are seeking to simplify their lives, as they no longer have a need for large homes for multiple family members. Smaller homes with sustainable features are favored over large spaces that require regular maintenance. Trends Luxury Loyalists who plan to spend at least $1 million on real estate in the next one to three years, tend to be in the market for a home in the suburbs under 5,000 square feet, with fewer bedrooms and bathrooms. In which one type of location do you want your next personal residence? Urban 28% Suburban 60% Rural 13% These buyers are seeking contemporary and modern homes as way to simplify their lives with less square footage and sustainable features. Mediterranean homes are also in demand as the allure of southern European design remains strong with the generation who grew up romanticizing the region through movies, food and travel. One-fifth of Luxury Loyalists are also considering moving to more compact spaces due to the efficiency, security and ample amenities offered by a large building of condominiums or apartments. Top 5 “Essential” Next Home Features 1 Has Outdoor Space, such as a Patio or Terrace 2 Has a Dedicated Laundry Room with High Efficiency Appliances (or space for their own) 3 Construction Incorporates High-Efficiency Windows and Doors 4 Master Suite with Dual Closets 5 A Butler’s Pantry with Ample Storage Excerpted from The Rise of the New Aristocracy. Download the complete 16-page report with an expanded list of the desired amenities of the future affluent buyer at luxuryportfolio.com/whitepaper.
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