Is luxury real estate the best purchase? – Rising Stone

When it comes to investing, it’s not uncommon to discuss yields, risk levels, volatility, and even satisfaction when prices are up or an operation has generated a profit. All too often, however, there is something essential missing – the notion of pleasure.

That’s the difference between a luxury real estate investment and other, more conventional forms of stock market, financial, and real estate investments. After all, owning an outstanding second home in a dream location is a source of both income and happiness.

A closer look at valuation

This defensive asset class is a safe haven par excellence, and a fantastic way to diversify any real estate portfolio – especially given the potential in this constantly growing sector.

For more than ten years, luxury real estate has been performing extremely well. Supply is limited, while the emergence of many multi-millionaires in fast-growing countries is driving up demand. As a result, the most exceptional properties in the finest locations are gaining in value year on year.

In the most sought-after destinations, the price per square meter has risen by between 30% and 70% over the last five years.

In comparison:

• The CAC 40 stock market index gained 50% over the same period.
• According to a French real estate investment body, ASPIM, distribution rates for real estate investment trusts (known as “SCPIs”) was 4.53% in 2022. This figure has remained stable over the past 5 years and is comparable to the rental yield on mountain chalets in the finest ski resorts – and therefore to the valuation of luxury properties excluding the cost of land.
• The price of gold per gram rose by 59%. A gram of gold used to be worth around €37, but is now worth almost €60.
• The Livret A savings account offered a negative real return, since it paid less than inflation.

Growing your capital through high-end real estate investment is therefore one of the best strategies to adopt for the highest return on investment in 2024.

Table: Valuation of luxury real estate assets from 2019 to 2024 in the most desirable destinations in France

*Data from the immobilier.lefigaro.fr website as of February 4, 2024

Table: Valuation of conventional real estate assets from 2019 to 2024

*Data from the immobilier.lefigaro.fr website as of February 4, 2024

A comparative market analysis of conventional and luxury real estate markets

Comparing property prices between the most prestigious cities and other towns in the same area is a quick and easy way to understand the differences in trends between the luxury and conventional real estate markets.

Overall, investing in real estate has been particularly profitable in recent years.

Although the most prestigious residences are rarely for sale (as these properties are generally passed down from generation to generation), the few sales that have taken place demonstrate a growing interest from buyers. Every year, historic villas, houses, and mansions seem to become increasingly valuable – both according to their owners and the real estate market itself.

The process of value creation for a luxury house or apartment

Luxury real estate is a favorite investment among multi-millionaires, as it is profitable in the short, medium, and long term.

Short-term profits: tax exemption, amortization, and rental yields

Over the next three to four years, a real estate investment offers an annual return of 3 to 5%, thanks to the seasonal rental of the second home. Owners can enjoy their first vacations in their home, while minimizing the cost of their acquisition thanks to rental periods and tax incentives such as French “LMNP” status, which allows furniture purchases and work-related expenses to be included in the property’s operating costs.

Medium-term profits: capital gains on resale

In the medium term, between five and ten years, rental income helps to repay the initial investment. The property portfolio grows and, in the event of resale, the operation generate an initial capital gain.

Long-term profits: passing down real estate assets and unforgettable memories

Over the long term, or over a lifetime, the acquisition of a luxury property consolidates wealth and constitutes an inheritance to be passed down. Beyond the financial aspects and material wealth, and regardless of its form (ski-in, ski-out apartment, mountain chalet, villa with private access to a secluded cove, architect-designed house, etc.), a second home becomes the “family home” year after year. A place where loved ones are delighted to come together, no matter what life throws at us. These moments are experienced as enchanting breaks and unforgettable memories with those closest to you.