Interview: Sotheby\\\'s crosses $100bn revenues in 2017; Indians third-largest buyers of luxury real estate

Manisha Natarajan caught up with Philip White, President and Chief Executive Officer, Sotheby's International Realty, to get a glimpse of the luxury trends.

Below is the verbatim transcript of the interview.

Q: How did luxury realty do in 2017?  You had stock markets across the globe doing very well. Did Sotheby’s global real estate business cross the USD 100 billion mark in revenues?

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A: Yes, last year was USD 108 billion while 2016 was USD 95 billion. So, how did that happen? I think you are absolutely right with the stock market. So many of the markets being up, obviously the US stock market doing well, but [also] the Hong Kong market, Japanese and so on... we benefitted from the global economy, the strength of the global economy, the stable currency was helpful as well and we feel like there is always a growing appetite for real estate. We benefitted from the fact that we built a global footprint over the last number of years. We are in 70 countries now with 930 offices and that is a testament to our network, to the people like we have here in India who are really contributing to that global success.

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Q: At the end of 2016, correct me if I am wrong, you had USD 85 billion coming from your US market and USD 10 billion coming from outside. Has the revenue footprint changed?

A: We did USD 96 billion in the US last year. Actually, I am not supposed to give these numbers out but we did USD 12 billion outside. So, to answer part of your question, what is exciting to us with the big base in the US, it is obviously a little harder to grow on a percentage basis. But still, I am proud to say that that was about a 14.5 percent increase year over year and the overall market in the US was up only 6 percent. So, we outpaced the overall market. But what is really more interesting to this audience is our international growth which on a compound annual growth rate, not to get too technical, is hovering around 20 percent a year. That is our target.

Q: So, yes, Indians and Chinese are buying bucketful. What we are all curious about is what does a true luxury buyer look for? What are some of the trends that you can identify for us for these emerging markets outside of the US?

A: They look for different things and then different generations look for different things. We are really trying to focus our attention on the millennial buyer. Many companies are doing that as well. We have done some deep research into our brand. Last year, we hired a leading management consulting firm to do in-depth consumer research. The brand Sotheby's has been around since 1744, the Sotheby's international realty brand has a global footprint, as we have discussed. We appeal to a certain part of the market, the established affluent, as we call it. We are focusing now on the emerging affluent, the younger buyer. And to answer your question, what are they looking for which is what we are focusing on at this point, they are looking for experiences and lifestyle. Not so much a 10,000 sq ft house or a 1,000 sq m property, but they are looking for property that is going to afford them some entertainment value and lifestyle and have it be unique and differentiated from other properties. So they are not looking for what we call in America a cookie cutter house. They are looking for something unique and special to them.

Q: That makes the job harder or easier?

A: It makes it more interesting. We represent developers or projects and having the research that we have, we can help advise them on what to build, what is going to be unique, what is going to appeal to particular buyers that they can target.

Q: It is amazing in terms of the new wealth which is getting created by the youngsters. In India, how is the buyer profile? Has it been exciting in India for Sotheby's?

A: India is a very important country, obviously and the wealth that is being created here is very significant and as an example, if you look at the US, last year, foreign buyers bought over USD 100 billion worth of real estate and what is interesting and noteworthy there is that the Indian buyer ranked number three.

Q: So, behind China, I know. Who else?

A: It was right behind China. I believe Canada was number two and India was number three. So, that is one of the many reasons. But we are not just looking to sell real estate in the US. We already sell a fair amount. What we are looking for in India is really trying to do business here. It is a bit more complicated because of the regulations that prevent a non-Indian from buying here. So that puts a little twist on it. So it becomes a very international marketplace with the Indian buyer and we look at the world in a very connected way which makes our job very interesting.

Following where people are buying, where they are coming from, what their interests are, looking at the tax advantages of one country versus another, all of that does get complex, but that is where the role of a real estate advisor comes in and we take that very seriously. Just like the auction house, Sotheby's which does business with generations of families, going way back and having that trust that effectively gets passed down. So we try to establish that as well.

Q. What potential does luxury property hold for ultra high net worth individuals as an investment?

A: With residential real estate, people are not looking necessarily for the yield on the investment unless it is a rental property. They are looking more for long-term appreciation and really, preserving the capital. So that is what we have always found with residential properties that it can be a way to protect against a tsunami for instance in terms of a devaluation of a currency. So, it gives a certain protection, so you are not at the whim of the stock market. Like the stock market in the US has gone down 1,000 points yesterday and 1,000 points on Monday and so, we think that real estate has proven to be a very safe long-term investment. We find that many countries certainly, Indians are right in that category where real estate is something that they have a great desire for and it accomplishes so much, it preserves the capital, it provides safe shelter and enjoyment and also it allows them to pass something down to the next generation.

Q: What about developers in India? Have you seen some of the real estate here in the luxury category?

A: What I am seeing is really very high-end property development. We have been talking with other developers this week and looking at the plans they have, the architects they are hiring, world-class architects, designers. So from what I am seeing, the properties that are being developed are on a scale that is similar to the best that we see in the other major cities where we do business.

Q: I have often heard Indians complain for the money they have just spent in buying anything in New Delhi and Mumbai, they could probably buy something in Manhattan and Central London. So real estate still seems a little bit expensive in India, doesn』t it, compared to what you could buy globally in some of the top cities?

A: On a comparative basis, real estate is a function of supply and demand just like many things. And sometimes that lack of supply of luxury properties which may be the case in some examples here, does impact the price in a higher way. So sometimes it is hard to compare one city to another in that respect.

Q: So digital, let me come to that aspect of Sotheby's. I quite enjoyed going through the website yesterday. In terms of your digital strategy, is it working to do all these innovative things like take the buyer through the experience, through virtual tours?

A: I will try to keep that in a nutshell, but the digital marketing space has emerged in the last 10-11 years or so. It is interesting when we launched our first major website which was about 13 years ago, we actually required one photograph to be listed on the website. Now believe it or not, many websites even back then did not require a photograph. Then we went from one to six and then to ten to enhance the consumer experience. And right now, our website traffic each month is more than we did in an entire year in 2006. So it has increased that dramatically and a lot of it is people going to the site, enjoying the properties, there are about 50,000 listings there. And then we worked with really all the major media companies starting with the US companies, The Wall Street Journal, The New York Times, The Financial Times in the UK, helping them providing more digital assets. So we really pushed the media companies to do what we needed them to do which is to provide a portal where we could then showcase all of our properties and then those viewers in those different media companies could access that. The beauty of the digital media versus print, the beauty of it is much easier to track so we can really keep a very close, we have all metrics on what people are looking for, the time they spend looking at properties. That is going to be what really advances going forward. It is going to be more of the personalisation of media. So, they are going to know all about you.

Q: Seems like we have covered all grounds except one, 2018. We have started this year on a shaky note with the stock markets. Everybody is saying we have topped out. So there are two ways of looking at it. One is that people will realise that they have topped out, skim off their profits and move into gorgeous homes or in uncertain environments, the first thing that gets knocked off is big lump sum purchases like homes. Which way do you think 2018 will pan out?

A: I am not really going to answer that question. I cannot really give you a hard prediction. We are very early into the year, so we are just starting to see what the market looks like. In the US, we have a tax reform act, so we are sorting through that. But at the same time, we are still bullish about the real estate market. In the US as an example, there is a shortage of supply of real estate in many markets.