By Lindsay Kinnealy, Slater and Gordon
Many people aspire to acquire residential real estate to serve as their own homes, as a buy to let investment at home or abroad, with a view to building up a portfolio to provide an income or pension pot or even as a status symbol.
Whilst the UK and Europe in particular are, at the time of writing, reeling from the shock “Brexit” referendum result and large numbers are carefully monitoring markets and considering their position on overseas property ownership, there are some fortunate investors who are likely to remain relatively unaffected by any changes.
According to market research, there is an increasing propensity for Ultra High Net Worth Individuals (UHNWIs) to not only invest in residential property but to live in and enjoy it personally.
Who are these individuals? The term UHNWI evolved from the earlier term HNWI or High Net Worth Individual, defined as a person with investable financial assets – excluding “collectibles, consumables, consumer durables and primary residences” – in excess of $1m. In time this became inadequate when the world counted some 13 million HNWIs. It was followed by Very HNWI definition (liquid financial assets of $5+m) and then by the Ultra-HNWI with $30+m to burn. With a combined net worth of £27+ trillion, roughly the same as the GDP of Russia or India (approximately 40% of the world’s GDP), around 65% are self-made and, of these, 22% got rich in finance, banking and investment. A group who clearly seem to know what they are doing…
Power, wealth and land have long been inextricably linked and UHNWIs, the richest people in the world, control a disproportionate amount of global wealth.
The world’s real estate has been valued in the region of 180 trillion dollars and the majority of directly-owned residential property is owner-occupied and lies in the hands of the world’s UHNWIs currently numbered at just 200,000. Currently making up just 0.003% of the global population, their numbers are growing and are predicted to increase by 22% by 2018.
The total value of all UHNWI residential property holdings globally is greater than the total value of all the residential property in France!
Over the past 10 years, there has been a swing by UHNWIs towards residential real estate investment (25% compared to 11% commercial property) and this is predicted to continue over the next 10 years. So, what inspires this savvy group to do so? According to research, a firm correlation has been noted between the performance of the prime, luxury property market and wealth creation. Should the rest of us less financially endowed folk aim to follow suit? Whilst we may not necessarily have the same budgets, could we follow their lead with regard to that most important factor– location, location, location – plus maybe a few of their other considerations?
So where is this UHNWI investment taking place? Geographically, the highest level of UHNWI real estate ownership is generally within their own region of origin, near to home, or places these individuals already know well, are popular with other UHNWIs and considered to be a comparatively safe haven for them and their funds. A lesson to be learned by all residential property investors perhaps, albeit on a lower scale?
This has led, of course, to exclusive enclaves or “billionaire bolt-holes” in Europe and the US, many of which will be familiar names such as Monaco, the French Riviera, Miami … renowned “playgrounds of the rich and famous”.
Most UHNWI direct property holdings are residential homes and they may have multiple second homes. The highest overall investment value is in Europe, both in terms of the number of investors and the value of the property in the region. Europe’s property is costly compared to many areas of the world but its appeal also lies in its well-established and transparent markets. The only new economies said to be attracting any significant investment by UHNWIs in recent times are China (because of its sheer size), Singapore and Russia.
North American UHNWIs tend to invest within the US largely in New York, Los Angeles, San Francisco and Miami whilst those from Oceania have long-favoured Sydney and London. The latter has stood out as a popular second home locale for the ultra-wealthy from all regions including the Middle East, Latin America, Asia and Africa as well as Europeans. Home to some 6,000 UHNWIs, more than twice as many as its nearest European rival, Paris, the British capital has seen more deals on homes worth over £100m than anywhere else in the world. UHNWIs like the time zone, the (so far) relatively stable economy, flexible visa and tax requirements, functioning legal system and strong financial institutions. Whether Brexit and current uncertainty will significantly impact on this, remains to be seen but at least one major luxury estate agency today reports more positive news. Following the “Leave” vote in the UK, they were inundated with calls from the Middle East on Friday and enquiries and offers made on properties in London since then have exceeded in value all of the sales made in the year to that time through their London office.
Hotspots on the elite buyers’ radar can be classified into three main categories: cities, retreats and destinations.
• City choices often reflect the ultra-affluent buyer’s business interests and financial commitment there, explaining in part the popularity of London and New York. These two cities head the list of economic super-hubs dominating this market. Others include Singapore, Hong Kong, Dubai, Shanghai, Paris, Sydney, Beijing, Geneva and Zurich. Many cities may also offer a combination of the best of both urban and resort living.
• Retreats include luxury, island and coastal resorts such as the Caribbean or the Hamptons and also lakes and countryside locations. Over 20% of prime properties in these areas are owned by UHNWIs. It is said that there are currently over one thousand private islands for sale and purchasing interest in these and activity has continued despite the financial crisis of 2008. Amongst these buyers was Cristiano Ronaldo who generously bought a Greek island for his agent as a wedding gift. Other UHNWIs may be drawn to this category of property for conservation or philanthropic reasons.
• The destination category refers to leisure pursuit areas such as the Scottish Highlands for hunting, shooting, fishing and golf; the Alps or Aspen for skiing; for others it may be wine-growing areas or sailing or sun playgrounds that are the draw. Certain locations such as Turks & Caicos which offer additional incentives such as investor friendly tax schemes and A-list privacy are reportedly pulling in record members of wealthy US and European buyers. Asia has started to develop its own, still nascent, resorts eg skiing in Japan and Hainan Island in China but demand for premium properties in Thailand (Phuket, Koh Samui) and Indonesia (Bali) is also increasing to serve the growing Asian luxury market and UHNWIs.
The concentration of UHNWI interest in a relatively limited number of desirable zones results in not only high prices but in ultra-high end housing and exclusive environments eg Monaco and Beverley Hills. This in turn attracts even more ultra-rich buyers to those locales, seeking the familiar luxurious comforts of home and an experiential, lifestyle investment rather than purely asset management. The French Riviera and the Swiss Alps top the luxury list for second and third home ownership by people within this group. But what types of property are they buying? Some seek the 6 star hotel experience in a premium “turn-key” property with full service amenities such as on-site gym, security concierge, valet, house-keeping or even a butler! So called “trophy” residences, one-off creations by leading international architects and designers, ignite the passions of others. Homes with lavish décor and trappings can be the hallmark of wealth and success for some but many prefer low key, scaled-back, understated quality luxury.
A newer breed of UHNWIs, formed from a generation of super-wealthy technophiles, are interested in a property’s environmental credentials. Conscious living and green issues are firmly imbedded in their psyche. Having grown up with sustainability, high value is intrinsically placed on energy efficiency, solar or radiant heating, rainwater collection and smart touch technology. Whilst nearly 10% of the wealthiest Americans made their fortunes in technology this is not solely a US phenomenon, government incentives and consumer interest in China have driven up demand there for “green” construction by 19% in the past year.
The largest percentage of luxury second home inward investment is in the US according to a recently compiled top 10, but the UK is close behind in second place. From within the continent of Europe, only 3 countries figure on this list unsurprisingly perhaps these are Switzerland, France and Monaco. The remaining countries in the top 10 are China, Hong Kong, Singapore, Australia and India.
The acquisition of residential real estate is a popular choice for UHNWIs including the new ultra-wealthy from emerging markets where an increased appetite for such property has been noticed eg among African investors, looking for a relatively safe haven for funds. Limited investment opportunities at home are leading these new players to diversify their portfolios and invest overseas, gaining a foothold in international markets with capital security and for some a chance to achieve permanent residency and a passport. Such privately wealthy individuals are becoming increasingly important players in the world residential property market and having a significant effect on global property investment.
UHNWIs clearly know a thing or two about the accumulation of riches and that this has long gone hand in hand with the acquisition of real estate. Whilst the majority of us may not have $30+ million to play with, investment in residential property – at home or overseas – could be one step towards joining this exclusive club.
