Endless Light

Cedric Cañas has been living the life of a handsomely paid expatriate for most of the past 12 years. The 33-year-old Spanish banker has spent time in both Boston and London, but it is New York City that he knows best, having first come to Manhattan in 1997. Cañas sold his one-bedroom Battery Park apartment at the end of 2005 when he was transferred to Madrid, but this winter he was sent back to the Big Apple, and he recently purchased a two-bedroom flat in Midtown for $1.3 million. Only this time around, Cañas intends to keep his New York property no matter where he goes next. "New York City is one of the principal cities of the world for finance; people from all over the world are coming here," says the Harvard Business School graduate. "At some point down the road, I'll probably be coming back to New York as well."

Cañas is a perfect example of the high-earning, globe-trotting cosmocrats who are driving housing prices skyward in the choicest world cities. From San Francisco and Seattle to Moscow and Shanghai, prices for prime residential property are surging, even as overall national numbers in some markets continue to be depressed amid worries of global recession and a real-estate bubble. The triumph of the glamour cities turns conventional wisdom on its head—for quite a while, experts including Yale's Robert Shiller have been predicting that these cities, having been hyped the most, would likely fall farthest, fastest. The decoupling of national and local real-estate trends, which were once much more closely linked, reflects the lives of the new "superprime" property buyers themselves, roughly 50 percent of whom are expatriates, according to the global-property research firm Jones Lang LaSalle. While globalization has allowed money, but not necessarily people, to roam the world more freely, Cañas and his colleagues are an exception—they float on a cushion of international capital, largely immune to regional concerns, and are flush with cash.

They're getting even more flush. A second consecutive year of big bonuses for bankers and traders has helped reignite demand for residential property in coveted neighborhoods like London's South Kensington and the Upper West Side of New York. Even outside these chief financial capitals, a decade of bull markets has swollen the ranks of the superrich so much that there is now a class of property buyer who can collect pied-à-terre apartments in Paris and Buenos Aires the way the merely wealthy collect cars or wine. With so much money in so many more people's pockets, the demand for luxury housing in the most-sought-after cities has simply outstripped available supply, hence the eye-popping prices. This is especially true in the toniest quarters of these cities, where growth is often double or even triple the over-all city figures. "It's quite an interesting irony that these buyers are globally footloose," says Sue Foxley, head of residential-property research at Jones Lang LaSalle, "because there are probably only 100 streets around the world on their shopping list."

Not surprisingly, demand is highest in the business hubs—the globe-trotters want to live in style in the places where they work. In a city like Shanghai, the concentration of high-end service industries like banking and insurance has sent prices skyrocketing to levels three times higher than those in the political capital of Beijing. A similar phenomenon is at work in India, where prime-real-estate prices in the business capital of Mumbai shot up by 90 percent in 2006, outpacing even the impressive 60 percent rise in prices posted in New Delhi during the same period. The numbers underscore the disproportionate effect that the most highly paid service workers have on property prices. The urban real-estate markets where such talents congregate become what New York City Mayor Michael Bloomberg once called "a luxury product [that] offers tremendous value."

While the "value" of a $1.5 million two-bedroom apartment remains debatable, the macroeconomic factors bolstering the boom are not. Superstar cities have their own individual growth dynamics, but they are helped along by the Goldilocks global economy (not too hot, not too cold). Although interest rates are starting to creep up across the world, they're still hovering at historic lows, between 5 and 6 percent. This, coupled with strong and in some instances spectacular growth in many parts of the world, make a property meltdown unlikely. "In a low-inflation, low-interest-rate environment, housing busts are relatively mild by historical standards," notes Nariman Behravesh, chief economist of the Massachusetts-based economic forecasting and consulting firm Global Insight. "As long as interest rates remain low, you'll see a housing recovery and then a reacceleration."

In places like New York, there was never really a deceleration. The National Association of Realtors reported last month that nationwide housing prices in the United States fell by an average of 2.7 percent in the last quarter of 2006. But prices in Manhattan were up by 14.4 percent in January of this year, according to the real-estate appraisal firm Miller Samuel. By some estimates, more than half of the top luxury buyers were expatriates, many of whom are cashing in on a weak dollar. "The market has been really flying since a couple of weeks before Thanksgiving, and good properties have been moving quickly," says Harriet Norris, a New York City broker for the real-estate firm Prudential Douglas Elliman. "It's not that I think New York City or Manhattan is impervious to a downturn, but none of the indicators are there to make it happen."