Investing for the future in a slice of the past


Investing for the future in a slice of the past

The market for first-class historic real estate has developed on a very positive upward trend over recent years. As an asset class in its own right, property with the potential to appreciate in value is in high demand as it is. Increasingly, this trend is also impacting on attractive listed buildings, and there is growing activity on this market in general, prompting Engel & Völkers to build on its competences in this specialised segment. The internationally operating company, dedicated to the brokerage of high-end residential property and premium commercial real estate, now has plans to reinforce its pan-European market leadership in this field still further with a specially designated website and a range of additional marketing activities.

“With historic properties, it is rarely the case that potential clients are based exclusively in the local area. The international alignment of our network gives us access both to exclusive properties and interested buyers throughout the world. This is a particularly important aspect when it comes to such exceptional residences, as we can broker them through our global property shops in a way that spans across different markets,” said Kai Enders, Member of the Board of Engel & Völkers AG

Alongside Western Europe, the strongest demand for historic residences comes from the USA, Russia and some Far Eastern countries, as well as Saudi Arabia in occasional cases. In addition to palaces, it is above all manor houses and stately homes, country estates, castles and even occasionally old cloisters that are in very high demand. Interest is aimed primarily at properties in Germany, Italy, Belgium, Spain, France and Switzerland.

Buying motives are diverse

Like the interested buyers themselves, motives for buying vary to a great extent. Frequently, it is private individuals with an entrepreneurial background who are fulfilling a dream when acquiring such a property. Such a purchase is very strongly linked to emotions. Often, a pronounced awareness and appreciation of traditions and the past plays a role here: the wish to buy a piece of history in the form of a palace or castle, or to live out the myth of life as the lord of the manor. Such a home is frequently envisaged to serve as an ancestral family seat for generations to come or, in other words, as a long-term capital investment. Some well-known personalities choose such properties as a home in which to spend their old age.

Investors and project developers have very different motivations. They are looking for historic properties with commercial purposes in mind, including usage as a restaurant, hotel, conference and seminar centre, holiday apartments or an event venue. With good-quality rental apartment buildings in urban centres being conspicuously scarce, investors are increasingly turning their attention to palaces as well and then transforming them into living units. Properties in good and very good condition are in particularly high demand, preferably with a large plot of land and ideally coming with their own hunting and water rights, as well as woodland and farmland.

The potential for appreciation in value of historic properties is very differentiated. Besides its overall condition and conservation status, the main criterion – as with all properties – is the location. Other decisive factors are the building’s historic prowess, cultural status, and any exceptional appointment features.

Competent consultation required for valuation assessment

Purchase prices for palaces in a very good condition range between approximately 6 million and 20 million euros, while properties in need of extensive renovation frequently change owners for far less than this. “Historic residences often don’t cost as much as one might think. Sometimes a manor house with a rich heritage can be acquired for less than a freehold apartment in an inner-city location. That said, maintenance and follow-up costs are of course disproportionately higher,” Mr. Enders revealed.

Experience shows that buyers make a decision very quickly on an emotional level. But intensive rational consideration of the modernisation and conversion costs is indispensible and must be calculated precisely. Historic properties are also subject to general building regulations with regard, for instance, to heat insulation and fire protection. In addition to the cost factor involved in modernisation, great expenses are often entailed with the cultivation of landed property. Competent consultation pertaining to the assessment of the property’s value is therefore absolutely crucial.

There is hardly any other kind of investment however where more tax can be saved than with a listed property. With renovation costs, capital investors and private users alike can profit from tax deductible amortisation from funds for the protection of historic monuments. Financial outgoings can also be reduced through grant negotiations with possible funding institutions including national heritage agencies. “Maintaining a listed property is an undertaking with cultural and historic implications. For many people, it is the renovation work in a proper and fitting way that gives an undertaking of this sort such great appeal. And modern homes simply can’t compete with the historic charm of a palace or country mansion,” Mr. Enders said.

Sales usually down to personal motivations

Many owners of historic properties relinquish the ancestral seat after centuries in their family’s ownership because they can no longer afford the ongoing costs of upkeep. Others simply have other plans for their lives, preferring for example to live in the city. The estates for sale are often ancestral seats of aristocratic dynasties that are usually well-known within the region and beyond. The reasons behind the sale of a property are therefore treated with great discretion. Sellers are however often a community of heirs that have lost family ties or cannot agree on who should take on the property.

Historic properties have come onto the market in greater numbers in recent years. Interested buyers therefore have good prospects of finding a suitable property. Sellers must reckon with an average time to market of approximately two years.

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