Also, once they own such property, they could rent it for the time when they are away. They could make a lot of money this way.
In the first case, people are giving away money for nothing. In the second case, people refuse to take money. Why do they do that?
Consider a $20 million Manhattan apartment. Even if it has a "management fee" of $5k per month (not uncommon), that's still only 0.3% per year. Far less than you'd pay to a hedge fund or other investment manager to hold on to the money.
Ultimately I think it will be self-defeating. If too many people do this, the vibrancy of the city that makes the real estate valuable in the first place will disappear, because nobody will be able to afford to live there.
Already happening in some places. The average rent of a 1BR in Manhattan leveled off a couple years ago, roughly equal to the average 1BR in Brooklyn. All but the most successful young professionals have fled the city for the boroughs; the artists fled ahead of them, so all the fun night life that used to make NYC so exciting is already out in Queens (for a while it was in Brooklyn, but I think a lot has been pushed out there already, too).
NYC, now, is a lot more dead by comparison. It's still fun for tourists, and the place to be for the sort of evening life that is either more expensive (fine dining) or less capable of flight to the outer boroughs (museums), but if you're a local...
Far less than you'd pay to a hedge
fund or other investment manager
to hold on to the money.
However, the few people who are that rich hold a wildly disproportionate share of total real estate. I don't remember the exact numbers and am having trouble finding a decent reference, but it's something like 10% of real estate being held by the top 0.01%.
10% of real estate being
held by the top 0.01%.
Second, yes, you are right, there are real estate tycoons owning a lot of property, but they typically make their money by renting and selling dwellings, not by leaving them empty. For example which of the world's richest real estate tycoons in the list [1] is leaving substantial numbers of their property empty? My conjecture is: nobody.
[1] https://www.forbes.com/sites/erincarlyle/2016/03/14/the-20-r...
Or maybe we need some service for that, which would include insurance and everything, and will just pay owners the money without worrying about anything.
As to why they don't rent it out when they aren't in town, I can think of a few reasons: they don't want the risk of items in the house being damaged, they don't want "other people" in their house, they like visiting on short notice (even if it's only a few times a year) which isn't compatible with renting.
Condsider a property that costs $1,000,000 which you may be able to finance 75% of. You have $250k invested, but it is the whole value that appreciates. So in a competitive market like Paris, perhaps that $1M house is worth $1.75M in 10 years. Now you have earned $750,000 for your $250,000 investment in 10 years. All the while having something relatively safe, and fun to use.
If it was inflation that caused the increase in home value, then you are covered for that too, much better than keeping cash in a CD or savings account.
Minus the interest you're paying on the $750K you borrowed in the first place. If that interest outstrips the appreciation of the asset, you lose.
We ended up buying a house so that we can use it for eight weeks every year when we're back in the US so that we can feel like we're in a home for the duration of our stay and not interloping on someone else's home. From our point of view, it's a valid use case.
My wife and I own a condo in the Philippines which we use 1 month out of the year. Why buy when we could just rent or get a timeshare? This place is ours forever, it has already appreciated 50% over what we paid 4 years ago, it is always available when we need it, and we got to decorate it the way we wanted.
My wife's relatives in the Philippines have the key, and they stay there occasionally to use the resort-style pool and cabanas, and a few friends from the UK or Australia who visited the Philippines stayed there. We could make money through AirBnB or longer-term rentals, and in fact the condo management company facilitates that with concierge, checkin/checkout, cleaning, airport transer services, etc, but the rent we would get (~$300-600 after expenses) isn't enough to justify the extra wear and tear on the condo.
being a landlord is a pain in the ass, even if you hire a property management company.
They don't rent any of them out since they like the flexibility to decide at the last minute where they want to spend the night.
They did luck out and buy these homes when prices were depressed.
Something to think about is all countries sell citizenship rights some more explicitly than others, but all do it, and going rate in the 1st world is about a half million on the balance sheet of a new company, and all you need to do is form a SMLLC and have it purchase the million dollar condo, then you're in on an investment visa and its pretty easy to prove your corporation has an asset of a million bucks, its right there in the tax records. Now the government hopes that people who come in on an entrepreneur VISA actually open a real business, but its hard to prove who's a real businessman vs an incompetent businessman, so anyone going thru the documented motions gets in. Anyway at least some million dollar empty condos are the visual manifestation of the weirdest naturalization ritual in the history of humanity. All countries have wide open visa policies if you're a businessmen willing to invest a large enough amount of money, all of them.
Because either
(a) they don't care for it being cheaper, they have plenty of money to spare (I know several such people), or
(b) they still have money, but not enough that they don't care about renting vs buying and living vacant. But they see the vacant house as a stable-ish investment on that property (I also know of this latter category).
Both cases don't care to go through the hassle of renting the house to others.
>In the first case, people are giving away money for nothing. In the second case, people refuse to take money. Why do they do that?
Both of these are concerns of middle/working class people like us. Not the concerns of people that make lotsa money (e.g. 500.000 to several million per year).
And above them, they are people who can afford to have whole castles sitting, waiting for them empty with full staff working there in several places in the world and not think twice about it.
And they could make a lot of aggravation this way if they get a nightmare tenant.