12 January 2017
How Ultra High Net Worth Individuals Spend Their Money
People aspire to acquire residential real estate for different reasons. For some it is to serve as their own homes, for others it is as a buy to let investment at home or abroad. People look to acquire residential real estate with a view to building up a portfolio to provide an income or pension pot, or even as a status symbol.
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.
This term became inadequate when the world counted some 13 million HNWIs. It was followed by Very HNWI definition (liquid financial assets of $5m or more) and then by the Ultra-HNWI with $30m+ to burn.
UHNWIs have a combined net worth of £27 trillion which is approximately 40 per cent of the world's GDP, or roughly the same as the GDP of Russia or India. There are currently only around 200,000 UHNWIs in the world, around 65 per cent of them are self-made and, of these, 22 per cent got rich in finance, banking and investment.
The world’s real estate has been valued in the region of £145 trillion and the majority of directly-owned residential property is owner-occupied and lies in the hands of the world’s UHNWIs. 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 per cent compared to 11 per cent commercial property. This is predicted to continue over the next 10 years.
According to research, a firm correlation has been noted between the performance of the prime, luxury property market and wealth creation.
Should Everybody Copy UHNWI And Invest in Residential Property?
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 we could also perhaps examine a few of other UHNWI investment considerations.
Where is 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.
Most UHNWI direct property holdings are residential homes and many UHNWIs have more than one second home.
This lesson could be learned by all residential property investors, albeit on a lower scale.
Locations tend to be popular with other UHNWIs and considered a safe haven for them and their funds. This has led 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 and Miami.
The highest overall investment value is in Europe. 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. Europe’s property is costly compared to many areas of the world but its appeal also lies in its well-established and transparent markets.
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.
London 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.
Hotspots on the elite buyers’ radar can be classified into three main categories: Cities, retreats and destinations.
- Cities - City choices often reflect an ultra-affluent buyer’s business interests and financial commitment there.
This partially explains the popularity of London and New York. These two cities head the list of economic super-hubs dominating this market.
Other popular cities with UHNWIs 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 - Retreats include luxury, island and coastal resorts such as the Caribbean or the Hamptons as well as lakes and countryside Over one in five prime properties in these areas are owned by UHNWIs.
There are currently over one thousand private islands for sale. The purchasing interest in these and activity has continued despite the financial crisis of 2008.
Cristiano Ronaldo famously bought a Greek island for his agent as a wedding gift.
Other UHNWIs may be drawn to purchasing this category of property for conservation or philanthropic reasons. Conscious living and green issues are firmly imbedded in the psyche of some ‘new-breed’ UHNWIs who place a high value on energy efficiency, solar or radiant heating, rainwater collection and smart touch technology.
- Destinations - The destination category refers to leisure pursuit areas.
Popular destinations include the Scottish Highlands for hunting, shooting, fishing and golf and the Alps or Aspen for skiing. For others, it may be wine-growing areas or sailing or sun playgrounds that are the draw.
Locations such as the Turks and Caicos Islands offer additional incentives such as investor friendly tax schemes and A-list privacy and are reportedly pulling in record members of wealthy US and European buyers.
Asia has started to develop its own resorts. Examples include skiing in Japan and Hainan Island in China and demand for premium properties in Thailand (Phuket, Ko Samui) and Indonesia (Bali) is also increasing.
The concentration of UHNWI interest in a relatively limited number of desirable zones results in high prices and exclusive environments like Monaco and Beverley Hills. This then 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.
UHNWIs clearly know a thing or two about the accumulation of riches and this has long gone hand in hand with the acquisition of real estate. Whilst the majority of us may not have millions of pounds to play with, investment in residential property – at home or overseas – could be one step towards joining this exclusive club.
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