BUSINESS CLASS: Diamond digs

This week our travels take us to the real estate markets of the rich and famous, where we find abandoned New England mansions and the palace of King Leopold II – which for one Russian oligarch became a castle in the air.

So this is a recovery. The stock market is stabilising, but don't bet on it. Jobs growth is strengthening, but not enough to convince us that business leaders are really-and-truly backing a rally. And debt is being piled upon debt as treasury departments around the world lie back and think of... well, England.

As Time magazine's Curious Capitalist so eloquently puts it, "the great stew of recent economic statistics seems to justify but one conclusion: This recovery will be uneven, disjointed and chocked full of surprises."

So would it fall under the category of surprising, or perhaps not-so much, that there seem to be a lot of stories popping up around the interwebs lately about the buying and selling of ridiculously expensive real estate?

Yes, it seems that even in hard times such as these there is still ample demand for prestige housing. The Australian this week reported that recent research has revealed that the nation's "most expensive homes are likely to rise in price by 10-15 per cent this year as wealthy locals and overseas buyers hunt for prestigious addresses in a resilient economy". Repeat after us, resilient. Re-sil-i-ent.

While last year was, according to Raine & Horne chief Angus Raine, "disastrous" for the prestige real estate market, this year it is heading towards a boom, no less. Around the country, says the paper, 72 homes priced at more than $5 million each sold in the December quarter, including Lachlan and Sarah Murdoch's $23 million Bellevue Hill shack. And in Melbourne this week, the Baillieu family's Toorak estate was reportedly sold for nearly $25 million to developer Harry Stamoulis.

As the RBA's Phil Lowe this week pointed out, (as conveyed by BS property blogger Chris Joye), house prices "rise in order to 'balance' demand and supply. This is precisely what fully functioning markets are intended to do. Price rises are signals to the supply-side to encourage more investment in new housing."

And that is precisely the method of market stimulation employed by prestige real-estate agents, says Forbes' Francesca Levy. According to those who know, she says, the mere listing of a property priced at up around the $US50 million-mark will draw the attention of wealthy buyers.

"It represents both value and prestige," says Levy. "There are fewer than three dozen properties between $US45 million and $US55 million publicly listed, and only six such homes sold last year, according to [America's] National Association of Realtors and Zillow.com. To reach this benchmark a home has to be matchless in location, detail and history."

And sure enough, several ludicrously expensive houses that tick all of the above boxes (and more!) have bobbed onto the market lately, just begging to be snapped up in the recovery market bonanza.

Take this "premier American mansion". According to Business Insider's Gus Lubin, it has location: "Deep in the woods of New Canaan, Connecticut." It has detail: "Full-time caretakers have presumably kept deer out of the living room, and it seems to be in very good condition." And it has history: "The 52-acre estate is owned by the descendants of William Clark, a 19th-century mining magnate." And it's a steal, at $US24 million. Although, adds Lubin, "who knows if the Shining-esque mansion is empty for a reason."

And then there is this abandoned mansion featured in DealBreaker, which is not, technically, ridiculously expensive – it's on the market for a paltry $US1.1 million – but it comes up trumps in the location and history stakes.

According to DealBreaker's Bess Levin, it is the "The House Millions In Stolen Bonus Money From RBS Greenwich Capital Built". And according to this real estate site, it is a "Majestic Log Home just 2.5 miles from Windham Village... Built for large family and friends to entertain... Custom Built with log throughout stone fireplace... 4 master bedrooms... Large family/media room guest quarters... granite counters, ss Bosch appliances, screened in porch... Large wrap deck with Gazebo and hot tub... 2 car garage for all the toys... attention to detail... 2 acres with additional land avail... overlooks large pond."

It seems, according to Levin, former RBSGC managing director James Glover built the house at around the same time that he "decided to help himself to a bonus (he did so by having junior employees submit wires that would normally go to a counterparty to pay for trades, and then approving them to, instead, go to his personal account)." Unfortunately, she adds, his "genius plan... was found by the damn chippies running the place and their infernal 'internal controls'. They escorted him out of the building and turned the matter over to 'law enforcement'." And now the spoils are anyone's to enjoy, for a bit of loose change.

And finally, we have the curious case of what Forbes' Karen Blankfeld describes as "the largest unwitting act of philanthropy" – in which Russia's richest man, Mikhail Prokhorov, was court-ordered to forfeit a $US53 million down payment made in July 2008 to buy the French Riviera estate, Villa Leopolda, for $US525 million from Lily Safra, socialite and widow of banker Edmond Safra.

The 20-acre estate overlooking the Mediterranean wasn't even up for sale, according to Safra's people, but Prokhorov's offer was too good to refuse, says Blankfeld.

Indeed, says The Times' Charles Bremner, "the contracted sale of the villa, a Belle poque complex built for King Leopold II of the Belgians, was by far the highest price agreed for a house anywhere in the world. It marked the zenith of the real-estate follies among competing oligarchs."

And it was made all the more foolish when Prokhorov's representative did not show up to complete the deal. Prokhorov sued to get the $US53 million back, but Safra stood firm, says Blankfeld, "insisting that it was a matter of principle and that she was planning to donate the entire down payment to 10 charities, including the Michael J Fox Foundation for Parkinson's Research and King's College in London."

And then earlier this month, a court in Nice sided with Safra, "ruling that Prokhorov had forfeited his claim to the money and ordering the deposit be released from escrow to Safra. It further held that Prokhorov and his holding company must pay Safra an additional $2 million or so for damages." After all, she had to re-hire all the staff.

Says Blankfeld: "The heiress added some salt to the wound in a statement soon after the judgment: 'I would like to encourage all who can do so to support medical research, patient care, education and other important humanitarian causes during these times of economic uncertainty'." A truly Bolshie thought.