Luxury Portfolio Vol. 08 Issue 01 - Gary E. Richardson

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NEW FACES, SAME CENTRAL BANKS Every region of the globe is growing right now, for the first time in over a decade. Last year, India posted the strongest growth of the large economies at 7%, China expanded at over 6%, the Euro Zone grew 1.5%, Russia emerged from a deep recession, and economies in South America and Africa benefited from the recovery in commodity prices. As a result, central banks from Asia to Europe are rolling back monetary stimulus and tightening policy. In the United States, Jerome Powell has replaced Janet Yellen as Chairman of the Federal Reserve, and there are several open seats on the Board of Governors that need to be filled in 2018. But luxury buyers should expect the same policy of slow, steady interest rate rises as the global economy continues to improve. IT’S ABOUT THE BALANCE Real estate is part of a portfolio that includes stocks, bonds and other assets. The strong gains in stocks over the last few years may mean that it’s time to rebalance that portfolio and add more real estate to the mix. S&P 500 index has tripled in value since its low in 2009, a pattern that’s been repeated in stock markets around the globe. With the strong gains in stock over the past few years, buyers are encouraged to embrace more real estate. 3

EMBRACE THE BLOCK, AND THE CHAIN Blockchain, an ever-growing list of records that are linked and secured using cryptography, has begun to influence financial services and will begin to change the way luxury buyers purchase homes in the near future. The first big real estate transaction using blockchain technology occurred in Ukraine last year. While still in its infant stages, blockchain technology promises to remake industries, just like the Internet transformed sectors from travel to finance. With real estate, blockchain technology is likely to have the greatest impact in less economically developed parts of the world where property rights are less secure, title is more difficult to establish and fraud is of greatest concern. It will make transactions cheaper and easier for the most sophisticated buyers, especially across borders. DON’T WAIT In U.S. markets, two strong forces will collide in 2018: millennial home buyers and the new tax code. The oldest millennials are now first-time home buyers. As they seek to put down roots for their new families, the most affluent millennials will be attracted to low-tax areas that will minimize their payments to Uncle Sam. Just as they drove up rents in the urban areas of their choice over the last decade, they will put upward pressure on luxury homes in their most desired neighborhoods in the years to come. Couple these forces with synchronized global growth — which puts upward pressure on real estate prices and interest rates across the world — and it makes sense to lock in that attractive luxury property as soon as possible. 5