Why the rich love property

The debate over whether Australia’s property market is set for a dramatic crash has become an almost constant feature of the business media.

Regardless of where you sit – and you only need to read the comments on any property story to know that feelings run extraordinarily on both side – it’s hard to escape the feeling that this is a battle between logic and love.

The logic that what goes up (and up, and up) must eventually go down, versus the seemingly bottomless love that Australians have for property.

But it’s not just in the outer suburbs where the love of property ownership is strong, as we seen in recent months with three young(ish) media barons.

Last month, we learned James Packer has received council approval to build what is likely to be one of Sydney’s most high-profiled residences.

The 3,369 square metre site in the Sydney suburb of Vaucluse is actually three properties that have been amalgamated into a super-site. Packer bought the first mansion for $18 million in 2009 and then snapped up two smaller homes on blocks located just below the main house for just over $12 million.

He’s now embarked on a build with an estimated cost of $13 million. When finished, the home will feature a 13-car garage, 23 metre pool, underground cinema, gym and staff quarters. And a 2.4 metre high metal security gate, just to keep out prying eyes.

Packer’s long-time friend Lachlan Murdoch is also in the amalgamating game. In February, he scooped up a property abutting his home in Bellevue Hill for $2.63 million, two years after buying the main house, which is known as Le Manoir, for $23 million.

Reports suggest the latest purchase was a dilapidated shack and Murdoch will now combine and then renovate the two properties. Meanwhile, he’s living at a $45 million home in Vaucluse he rented last year.

The younger buddy of Murdoch and Packer, Ryan Stokes (son of Seven Group chief Kerry Stokes) is doing some combining of his own.

According to a report in the Australian Financial Review, Ryan has just received approval from the City of Sydney to amalgamate two apartments in the prestigious Pier 6/7 building at Walsh Bay.

Stokes picked up one of the pads for $4.8 million last year, a decade after his family bought the first apartment off the plan for $2.95 million. Reports suggest the renovation to amalgamate the two properties will set Stokes back $200,000.

Rich listers Doug Moran and Cyril Maloney are others who have amalgamated apartments to create “superpads”.

The love of property runs deep with the wealthy, as highlighted by a report released last week by global real estate firm Knight Frank and Citi Private Bank.

The report looks at the property habits of the world’s ultra high net worth individuals, defined as those who have fortunes of more than $100 million and found that these wealthy individuals have 35% of their wealth in property.

They see property as their most important investment after their own business and despite five years of turmoil on investment markets, they are now more likely to invest in property than any other class.

While the survey has some interesting insights into what drives property investment – 57% of UHNWIs have a residence outside their home, with the need for a holiday house the primary reason for owning a second home – the most studied part of the list is of course the rankings of the most expensive cities in the world.

Monaco took the title for the third consecutive year, with the average square meter of luxury real estate costing $65,600. That puts the tiny principality ahead of London ($56,300 a square metre) and five ritzy French towns – Cap Ferrat, St Tropez, Paris, Courchevel and Cannes.

Australia’s lone city on the list is Sydney, which is ranked in 34th position, with luxury real estate going for $11,500 a square metre. (Strangely, the list does not include Melbourne, although prices would not be that far below that of the Harbour City.)

Sydney also ranked well in that Knight Frank called its “attitude” survey, coming in as the 15th best city or UHNWIs to live. The city was also ranked as the 14th best city for entrepreneurs, the ninth best city for hedonists and the sixth best city for romantics.

But Sydney was ranked 75th out of 85 cities for price growth in the last 12 month, as prices actually fell 5%, which was in stark contrast to major centres such as New York (where prices jumped 15% despite the state of the US economy) and London (where prices rose 10%).

But it is the cities at the top of the price growth list that show how the world of wealth is changing.

According to the report, luxury real estate prices in Shanghai surged 21%, while prices in Mumbai jumped 20%. Other Asian cities in the top 10 include Singapore, Bangalore, Hong Kong and Manila.

As wealth surges in China, India and other areas of East Asia, property prices will follow.

Because while the rich might move in very different circles to the rest of us, their love of four walls and a roof is just as strong.