Thomas Veraguth, the Zurich-based head of global real estate strategy for UBS Wealth Management, is part of a team that puts together the annual UBS Global Real Estate Bubble Index, which reveals the cities where buyers should be cautious before making any leaps.
This year’s report found that the world’s major financial centers are facing greater risks of a real estate bubble in 2017 compared to the year before, with Toronto taking the top spot in terms of risk of a bubble.
Mr. Veraguth, 49, has a masters in economics from the University of St. Gallen in Switzerland. Before joining UBS, he worked at Credit Suisse as an industry analyst.
We caught up with him to discuss the long-term promise of London, why it takes a while for an "emerging" area to get truly luxurious, and more.
More:Architect Bjarke Ingels is Globally Inspired, but Locally Focused
Mansion Global: Describe your dream property.
Thomas Veraguth: That’s an easy question to answer. I’m renovating a very old house in the mountains in Switzerland from the 17th century. It’s half stone, half wood.
It’s high in the mountains with a nice view of the surroundings. That’s my dream property in a way, and I’m working on it now.
But more generally, a dream property is one that you love but don’t necessarily need.
MG: Do you have a real estate property that got away?
TV: Of course. The timing has to be right to buy a property. But the property needs to be right. You need to have the right liquidity, and it has to be the right time in your life, too.
The best advice is to always look at the market so you can time all those things together.
More:Steve Gold Says Buyers Can ‘Score an Incredible Deal’ Right Now
MG: What area do you think is the next hub for luxury properties?
TV: It’s easier to answer the question: "What are the luxury locations that are least likely to see corrections?"
We’ve seen, for example, that Sydney and Vancouver are two extremes coming toward the end of their cycle. There are bubble risks in those places, but it doesn’t mean the bubble will burst in a crash manner.
But a luxury destination is not something you can create in a few years. There is certainly an attempt in some emerging countries. There are places like Croatia, and Montenegro that investors are trying to push. But it takes years.
There will be several new attempts around the world in Eastern Europe and Southeast Asia. Those are the two regions that will look to develop luxury properties most, but it will take time.
I was in Eastern Europe recently and I visited Montenegro. There’s a place called Budva. They really want to develop this place as a new luxury hub. But it’s a ways away.
More:London Buyers’ Agent on the Slowness of the Market, the Appeal of Flats, and More
MG: What’s the biggest surprise in the luxury real estate market now?
TV: It’s a surprise and at the same time not a surprise when you look at interest rates and liquidity. London has begun to flatten, and its luxury market has even begun to correct itself. There’s no crash, but there was a correction.
No crashes are happening, but there are corrections happening.
What’s interesting is that there’s a flattening in the price increases around the world—except not in Vancouver and Sydney. We’re seeing a deceleration that’s happening evenly around the globe. There’s not too much difference between luxury destinations; they seem to be in the same cycle, with some few corrections.
The good news is that there’s still no crash, and we’re not expecting one either.
But since we are observing parallel developments in big luxury cities, those destinations may all correct at the same time. What that means is that you might not be safer in one versus another.
From Penta:High-Net-Worth Americans Pursue Wealth for ‘Emotional Wellbeing’
MG: Where are the best luxury homes in the world and why?
TV: That’s a personal decision. But it’s about finding places where there’s a capacity to recover. No places are free of risk or down cycles, but there are places that can rebound better than others.
London is an example—London will not lose its capacity to recover. Even if they go through flat price development or even corrections, they will recover, and so London will continue to be, to my understanding, an important luxury destination for people around the world.
MG: What’s your best piece of real estate advice?
TV: Even if you buy at the wrong moment in the cycle, you want to buy in a place that has the capacity to recover. You want to feel secure that the environment around your house is something that supports the value of your property. Even if the price decreases by 30% at some point, you can stay confident it will come back up.
More:Homes With ‘Major Views’ Are ‘Sexy Today,’ Says Elizabeth Stribling
MG: What’s going on in the news that will have the biggest impact on the luxury real estate market?
TV: There’s a lot of noise in the news. A good location isn’t defined by politicians or the economy, it’s defined by how your neighbors around you feel about the area.
The news I don’t want to hear is that my neighbors are leaving. That’s bad news.
But for people who are affected by stamp duties and high taxes, it’ll be interesting to see what will happen. People will fight to adapt or to change the policy or to convince decision makers to adapt their decisions to this area. I imagine we’ll see adaptations in places like London.
MG: What is the best area now for investing in luxury properties?
TV: I’d say now is not the best time to invest in luxury properties. I’d rather wait because interest rates may increase in the next two to three years, which may make financing more costly, which could contribute to price corrections.
At this moment, investing in luxury properties is something you should look to with caution. You may want to wait until we have transparency in terms of what’s happening with interest rates.
More:Click to Read More Luxury Real Estate Professionals Share Their Insights
MG: What area currently has the best resale value?
TV: We spoke already about London. But we’re not talking six months—more like four to five years. London is still a very strong in that regard.
Hong Kong is an interesting spot, too. Of course, it’s very expensive and prices have gone up. But China is investing in Shenzhen, Guangzhou, and Hong Kong is part of that investment, too. China has the biggest infrastructure investment plan for that greater area, so I think Hong Kong has a strong resale value.
And Paris is a diversified market. The recovery may be better there than, say, San Francisco, where it’s very focused on tech.
Singapore is interesting because it’s well located geographically. And it’s gone through a price correction already, while Hong Kong hasn’t. The recovery potential is quite strong in Singapore. The economy is well diversified. And Singapore will always, like London and Paris, attract people from all over the world.
New York, too, is likely to have a better recovery than places like Vancouver and Sydney, for the same reason.