Yachting Industry’s Sea Change Amid the Credit Crisis

Viewpoint by James D. Roumeliotis, founder and former president of East Med Yachting Partners (Greece | Turkey)

From the looks of today’s new mega yacht order book and the high attendance numbers at last September’s Monaco Super-yacht Show, one would immediately dismiss the notion that the upper social classes have been spared by the global economic crisis. In fact, the ultra rich have also been vulnerable and begun to reduce spending as they fret over their shrinking investment portfolios. Not immune in the luxury domain are other categories such as premium cars, supreme watches and the like. Yet for boat yards, they appear to be somewhat affected compared to a year ago.

A recent survey in the U.S. shows that Americans are cutting off purchases of luxury goods, and this is true especially for the ultra affluent. For instance, the owner of the 14 guest, six stateroom “Alibella”, a 50 meters (164 feet) luxury yacht, is keen enough to offer a discount of ten million Euros to a buyer ready to do the transaction in less than a month. “Alibella” is considered a modern day yacht in a class of its own with high-end finishing and a helicopter landing pad. The discount reduces the cost of the yacht to 24.5 million Euros. It is one of the many mega yachts that have seen their price decrease following the explosion of the U.S. mortgage sub-prime’s crisis which has rapidly spread beyond its borders, including the start of the economic recession. The situation is such that there are also an unusual number of second-hand yachts available these days at substantial discounts.

Of oligarchs and petrodollars
Not surprisingly, in recent times, the major clients who have contracted the significant number of new custom made behemoth water crafts have been Russia’s oligarchs and Arabs from the oil producing Gulf states. The former have accounted for about 18 percent of new mega yacht purchases. At present, the signs are proving that both the American and European upper classes, in addition to their Indian and Asian counterparts, have taken a more conservative view and have restrained themselves from elaborate purchases at least until the world economy regains vital momentum.

Size matters
The size of the yacht seems to have an impact with regards to the categories that have been hit the most during these recessionary times. Vendors say they expect sales to continue to shrink at the lower end of the market as many small and midsized boat owners bought them with borrowed money and some secured on residential property. In many cases the value of these loans now exceeds the value of the assets. But the super-yacht industry, which is not dependent on financing, is stronger than it has ever been before. Figures released by Camper & Nicholson, an international yacht brokerage firm, showed that new orders for super-yachts had grown 18 percent in 2008. Today the average super-yacht category is pushing 190 feet (60 meters), with some as long as 450 feet (137 meters).

Modesty replacing ostentation – for now
Nowadays it is considered impolite to boast your excesses and that includes your floating toys. It seems distasteful at a time when most are struggling to cope with the economic meltdown. Splurging, which may be viewed today as synonymous to greed, coupled with fear of the unknown in the world financial markets, has simmered making a “look at me/mine” statement a current taboo.

Anticipating the comeback of the high flying seas
When the dust eventually settles the yachting industry should be returning to its allure, though, in a more sedate mode. The “nouveau riche” will resume purchasing but to a lesser extent than ever before and possibly consider the fractional ownership or charter route as options. We can’t dismiss the fact that yachting is what it is: a product and activity reserved for the well heeled. There will always be a new crop of willing and able buyers who will have the desire to own a floating asset. Be as it may, boat builders and dealers are understandably nervous but are determined to weather the turbulence. In this case, patience and tenacity will warrant being meaningful beyond a doubt.

CAN ALSO BE READ IN THE MAGAZINE WHERE IT WAS PUBLISHED AT:  www.cremedelacremeoman.com/jan-issue.pdf

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