The latest wealth report from the UK-headquartered property marketing and management group, Knight Frank (in association with CitiBank), is in many respects similar to those that have preceded it over the last two years.  However, it also reflects accurately the recent global economic and political turmoil and the changes in market strengths.
 
This was said this week by Lanice Steward, Managing Director of Knight Frank’s South African associate, Anne Porter Properties.
 
“There is,” said Steward, “no better guide to the world’s property markets than this one.  Based on an in-depth survey of 5,000 of the world’s richest people, UHNWIs, i.e. ultra high net worth and high net worth individuals (HNWIs), as well as certain of their financial advisors, this survey covers over 40 countries and is relied on by property investors worldwide.”
 
So - in what way is this review similar to its predecessors and in what way is it different?
 
“As in previous years,” said Steward, “what this survey shows clearly is that HNWIs place great confidence in property.  On average 35% of their assets are in property, with 19% in commercial and 10% in residential property.  This compares very favourably with an average of only 19% in equities, 5% in cash, 5% in corporate bonds, 10% in agricultural commodities (a big rise recently) and 10% in foreign currencies, with the rest invested in other assets including oil, gold and collectables like high priced art.  This is in most respects similar to the pattern revealed in previous HNWI wealth reports.”
 
How then is the latest survey different from those that have preceded it?
 
“The new survey reveals three things,” said Steward.  “Firstly, there is now a growing conservatism and risk-aversion among HNWI investors.  This leads them to favour already successful property investment areas such as New York, London, Paris, Monaco and Cannes rather than to try riskier, unproven areas as they did in the past.  Sixty three percent of those interviewed said that they were now more concerned than last year about the political future of the world and 80% were more concerned about the world’s economic future.  A staggering 48% of North Americans were reported to have little faith in the bail-out rescue measures by Europe and the UK, believing that these might not prevent a further downturn and eventual collapse in some of the distressed countries, Greece, Portugal, Spain, Ireland and Italy.”
 
Steward added that it should be noted that despite this pessimism 70% of HNWIs interviewed said that they still had an appetite for further property investment and a big majority revealed that they intend to add second, third or fourth homes to their portfolios, in many cases in countries other than their own.
 
The second trend clearly indicated by the report, said Steward, is the massive shift of assets to the Asia Pacific region.  Steven More, a Director of Scorpio Partnerships, reports in his article in the review that the collective wealth of HNWIs rose by 22% last year (off the low base of 2009) and that the majority of the big rises were seen in the Asia Pacific region.  Eleven trillion dollars of HNWI wealth is now invested in this region and this is roughly the same amount that they have invested in Europe and only two trillion dollars behind their North American investments.  Particularly significant, said Steward, is the fact that dollar billionaires in the Asia Pacific region rose by 140% last year.
 
Capital inflows to this region have, therefore, been extremely high (over 40% higher than the previous year) and this among other things has resulted in the growing value of the region’s property prices.  While London and New York still have the most expensive property in the world, about a dozen of the 30 top ranked cities, including Tokyo, Beijing, Hong Kong, Shanghai, Singapore, Bangkok and Mumbai, are now in the Far East - and the survey predicts that they will occupy five of the eight top ten spots within the next decade.
 
A further trend revealed by the survey, said Steward, is the growing importance of investments in raw material commodities and agricultural property.  With China now taking 46% of the world’s materials, up from 9% only a decade ago, and with food prices in real terms rising over 20% per annum, ores, metals and agriculture are very much back in fashion as investments and are often seen as a rival to property.  Even UK farm property has trebled in value since the start of the 21^stCentury and Brazil, Patagonia, Chile, Zambia, Ukraine and surrounding areas and parts of Australia are tipped by the report as having good agricultural potential with relative freedom for investors.
 
The report shows that vineyards, too, are now increasingly favoured by HNWIs, although traditional wine producing areas such as Bordeaux, Dordogne, Napa Valley and Western Australia have seen big property price drops as a result of the recession and oversupply.  South African vineyards, with an average price of only 80,000 dollars per hectare (about one-quarter of that of vineyard prices in Napa Valley), have managed to maintain their values.
 
Other trends shown by the survey are the growing importance of low tax and tax haven areas, despite antipathy and resistance to them from the major economies, the increasing appetite among Asian buyers for European and UK property (almost 60% of London new build apartments last year were bought by Asians and a concomitant growth in the use of USA, UK and European education).  There has also been a swing among HNWI investors to fine art and expensive wines.
 
“Trying to identify the main themes emerging from this report,” said Steward, “it is clear that HNWIs have retained their faith in property but are diversifying their investments over a wider field.  It is also clear that raw materials and agricultural commodities are now increasingly seen as a viable alternative to the more traditional investment channels.  Although Far East properties are currently attracting a far higher percentage of HNWI investors, the developed countries have not lost their appeal and at least two of the commentators in the review are predicting a return to First World property investments within the next three years.”
 
For further information contact Lanice Steward on 021 671 9120 or email lanice@anneporter.co.za.