Real estate outlook 2022: market stabilization and return of the international buyer

As we close out 2021 and look towards 2022, we expect a number of major benchmarks for the luxury residential real estate market, chief among them increased market stabilization and the continuing return of the international buyer.

In relation to increased market stabilization, we are beginning to see a lessening of the frenzy that has overtaken all facets of residential real estate over the past 18 months, including the luxury residential market. Multiple offers on a home, sight-unseen purchases and continually diminishing inventories have begun to stabilize.

As a matter of fact, in some areas, we are actually beginning to see a small uptick in inventories.

This is by no means an indication of diminishing demand at the luxury level. On the contrary.

A soon-to-be-released report by the research team at Luxury Portfolio International will reveal that luxury buyers are interested in using real estate as part of continued diversification, especially in parts of the world outside the Americas.

We will also continue to see very strong activity, as the transfer of assets to a new generation continues, and residential real estate is — and will continue to be — a substantive part of that process.

As to international buyers, they are starting to come back.

We see increased activity in two-overarching categories at the international level. The first is the opening of countries, even slightly, as we continue to work through the impact of the pandemic. Cities such as New York, Los Angeles, Boston and Miami, among others, whose luxury condo sales are chiefly driven by the international market, will see a resurgence as we enter 2022.

A second facet to the international market is that geopolitical issues are driving the luxury market more than we think.

We expect to see significant amounts of activity from the Middle East in 2022, as affluent consumers from
that region look to diversify their holdings from chiefly oil to other assets.

Asian money will also be a major factor as high-net-worth individuals look for safe harbor from turmoil in that sector of the world.

New luxury housing inventory is certainly not keeping up with demand, and Luxury Portfolio members continue to espouse the exponential growth of the luxury residential real estate sector ($1 million-plus residences) in newer luxury markets such as Tucson, Arizona and the Tampa/St. Petersburg area of Florida.

One headwind that will continue in 2022 is the challenge of goods and services as it relates to construction, factoring a labor and material shortage, as well as issues with port delays.

We know of one developer who had deposits from buyers, and reached out to those individuals for a 10 percent-plus price increase as the cost of construction for the luxury resort property began to skyrocket. While this may be a one-off example, and the buyers and developer actually agreed on a price increase, it is clearly not a viable long-term solution.

The challenge will be how to gauge construction costs so that the pricing process is more stable. That will be an issue for luxury developers during 2022 and beyond.

Nonetheless, as the tumult of the ongoing pandemic continues to wane, we expect a return-to-normal trajectory for the luxury residential real estate market in 2022.

For multiple reasons, the viability and strength of the luxury residential real estate market will certainly continue to grow and evolve.

Mickey ALAM KHAN is New York-based president of Luxury Portfolio International. Instagram: @MickeyAlamKhan

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