CPI Blog

Luxury Watch Index And Multifamily Real Estate: Is There A Correlation In Performance?


by | Sep 13, 2023

Dear valued existing investors and future investors,

Welcome to this week’s CPI Capital’s news briefing. Our regular, weekly newsletter contains a mixture of updates, commentary and informative related articles about the lucrative world of passive real estate investment.

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This week, we’re going to take a look into the intriguing connection between different asset classes. We will explore an interesting correlation that has caught the attention of real estate multifamily real estate investors and watch enthusiasts alikeā€”the relationship between the luxury watch index price and multifamily real estate investments.

What is an asset and/or asset class?

An asset is a resource with economic value owned by an individual or other entity with the expectation that it will provide a future benefit. An asset class is, therefore, a grouping of investments that exhibit similar characteristics and made up of assets that often behave similarly in value to one another in the marketplace.

What is a luxury watch and the Luxury Watch Index?

A luxury watch is a watch that uses high-quality, premium materials. It is powered by advanced and complex movements and such watches are often hand-made. Luxury watch manufacturers endeavour to ensure the utmost precision, performance, quality and attention to detail in their products.

The Overall Market Index is an indicator of financial trends in the second hand watch market. The Index is calculated based on the prices of 60 watches (in USD) taken from the top 10 luxury watch brands by transaction value and represents the average market price of these 60 watches over time.

Background of the appeal of luxury watches and multifamily real estate

Across the world, the luxury watch market has long been a symbol of style, craftsmanship and exclusivity, with only limited numbers of certain luxury watch editions being made, and with demand generally exceeding supply.

Similarly, multifamily real estate investments have proven to be a lucrative route for passive and other investors, offering stability, cash flow and long-term capital appreciation.

Whilst on the face of it, the idea of a correlation between these seemingly distinct sectors might seem unconventional, it’s something worth examining in more detail.

Basic dynamics of the luxury watch market and multifamily real estate investment market

To begin, it is essential to understand the dynamics of both the luxury watch market and the multifamily real estate sector. The luxury watch market is influenced by various factors, including brand reputation, scarcity, craftsmanship and the perception of value.

Multifamily real estate investments, on the other hand, are driven by factors such as population growth, employment rates, interest rates, rental demand and general economic conditions across the state or even the US as a whole.

Some similarities between demand in the luxury watch and multifamily sectors

Whilst at first sight, there may not be a direct connection between the luxury watch and multifamily sectors, they are both influenced by broader economic indicators and trends. Economic prosperity, interest rates, consumer confidence and disposable income levels can impact the demand for luxury watches and the attractiveness of multifamily real estate investments.

One potential explanation for the perceived correlation is the concept of “wealth effect.” As individuals experience increased wealth or a positive economic outlook, they may be more inclined to invest in luxury goods, including high-end watches. Additionally, when wealthier individuals invest in luxury watches, it can contribute to an aura of luxury and exclusivity, which, in turn, can attract luxury retail and residential developments to a certain location or city; this includes high-end multifamily properties.

Another aspect to consider is the concept of alternative investments. In times of market volatility or economic uncertainty, investors may seek alternative assets as a means of diversification and wealth preservation. Both luxury watches and multifamily real estate can serve as tangible assets that provide potential returns and hedging capabilities against traditional investment instruments.

Furthermore, there is an indirect relationship between the two sectors through the influence of high-net-worth individuals (HNWIs) and/or accredited investors. HNWIs, who often have a penchant for luxury watches, may also invest in multifamily real estate as part of their diversified portfolios. Their investment decisions and lifestyle choices can indirectly impact the demand and value of luxury watches as well as the multifamily real estate market.

Having said this, any perceived correlation should, of course, be interpreted with caution. Market trends and performance of these sectors are influenced by numerous complex and interrelated factors, making it challenging to establish a definitive causal relationship. Additionally, local market dynamics, regional economic conditions, and geopolitical factors can significantly affect both luxury watch prices and multifamily real estate investments.

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CPI Capital understands that, whilst the correlation between luxury watch index prices and multifamily real estate investments might not be readily apparent, both sectors can be influenced by similar economic indicators and trends. The concepts of wealth effect, alternative investments, as well as the influence of HNWIs, offer potential insights into the connection between these markets.

As prudent real estate investors, CPI Capital knows that it is essential to conduct thorough market research, consider market fundamentals, and carefully examine the results of the various metrics when evaluating and, subsequently, making multifamily investment decisions for the benefits of our passive investors.

Yours sincerely,
August Biniaz
CIO, CoFounder CPI Capital

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