Quality of life, knowledge and influence, and economic activity are the key factors for the ultra-wealthy investing in property, says Knight Frank and Citi Private Bank’s sixth Wealth Report.
According to the 2012 edition of the report, London, New York, Hong Kong and Paris are seen as the most important world cities for high-net-worth individuals (HNWIs), while Beijing and Shanghai are the cities with the most rapid growth in importance to HNWIs.
HNWIs from the Middle East and Africa rate Dubai as the location with the most rapid growth in importance, with HNWIs from Latin America rating Miami and Sao Paolo as strong contenders for future influence.
Personal security (63%) now ranks above economic openness (60%) in HNWIs’ choice of cities to live.
Monaco remains the most expensive residential location in the world, with one square metre there now worth USD58,300 (Q4 2011), followed by the prime locations in Cap Ferrat, London and Hong Kong.
The Wealth Report 2012 also confirms the relentless shift in wealth distribution towards Asia-Pacific: the region covering China, SE Asia and Japan now has more centa-millionaires (those with over USD100m in assets) than North America or Western Europe.
Emerging economies have continued to build their huge influence on the real estate markets in established locations: wealth flows from developing economies underpinned prices across the leading prime markets in North America and Europe including Miami, Vancouver and London in 2011.
Knight Frank and Citi Private Bank expect further growth in interest in commercial property from HNWIs, forecasting USD74.1bn of private transactions globally in 2012 (a 5% year-on-year increase).
The report also highlights the increasing influence of global wealth flows on prime property and investment markets.
The newly wealthy from the world’s fastest-growing emerging economies rate stability, business transparency and education systems as the most important factors in a global city; prices of luxury housing in locations with this magic formula have been underpinned by their interest.
In Europe, despite the past year’s continental recession, the main luxury market hotspots have remained relatively hot – eight out of 10 top locations in the Knight Frank Prime International Residential Index (PIRI) price rankings are in the UK, France or Switzerland.
Prime property is a key part of portfolios – 2011 saw a global increase in allocation to real estate of 19%; the largest climbers in 2011 popularity for investment were bonds (+65%) and cash (+60%).
According to the report’s unique Attitudes Survey, lifestyle and investment remain the key drivers for luxury second-home purchases, with 16% of all HNWIs surveyed already owning a ski chalet, and 40% a beachfront property. The US and UK are the top second-home destinations for the rich.
Andrew Shirley, editor of The Wealth Report says: “This year’s Wealth Report contains even more evidence that the world’s wealthy are weathering the economic slowdown better than the wider population, and nowhere is this better reflected than in prime property markets. Those markets considered ‘safe-haven’ locations continue to attract private investors looking for both prime residential and commercial property. Political and economic uncertainty across the world is only helping to exacerbate the trend.
“But it is not just property where HNWIs from fast-growing economies are making their mark. The Wealth Report’s Attitudes Survey reveals that they are playing an increasingly important role in the worlds of sport, fine art, wine, and philanthropy.”
Luigi Pigorini, CEO Citi Private Bank Europe, Middle East & Africa, says: “Wealthy individuals and families, especially those originating from Europe, the Middle East, Africa and Asia, have become extraordinarily global in nature. Many seek the rule of law and stability that make the UK a top choice for investment. With English a popular second language and a relatively weak pound, the global wealthy have confidently focused their interest on London and the wealth preservation it can afford.
“Investors seeking a more conservative strategy have gravitated toward high-quality properties in central business districts in cities such as Beijing, London, Munich, New York, Paris and Sydney. Conversely, for those willing to accept more risk, high growth markets, such as Asia and Latin America, may be able to generate more attractive returns relative to the US and Europe. Investors must remain cautious as global economic growth will continue to influence all property markets, and investors should measure their yield and return expectations taking growth into account.”