So you’ve found a time machine and you’re looking for a safe haven to store some extra cash, as well as maybe some capital appreciation over the long term. Knowing what we know now, you’d probably go back to 1929, buy a large chunk of land in Texas cheap and wait for it to turn into downtown Houston. Maybe buy one of the more rickety buildings on D’Aguilar or Shelley Street and hope someone finds a way to get up and down that Mid-Levels hill more comfortably. That or bankroll the struggling Steve Jobs. Or all three.
But we don’t have time machines and predicting where to “store” wealth is a tricky business. Environments influenced by economics and politics can shift like the wind and make wealth management more art than science. Released in March, the sixth The Wealth Report 2012, co-authored by Knight Frank and Citi Private Bank, isn’t a crystal ball but it is a comprehensive, global study of prime property patterns in 71 of the world’s prime residential property locations. It’s based on surveys culled from 5,000 of Citi’s clients and is fairly representative of what those with wealth to invest are thinking.
This year’s Wealth Report has just as many surprises in it as foregone conclusions: Surprises include a rapid shift in wealth and security now outranking economic transparency for importance in residential choices. Foregone conclusions include emerging economies underpinning property markets in key cities and the fact that despite the turmoil of the last few years, Europe is home to the vast majority of luxury residential hot spots (in the UK, France and Switzerland).
But perhaps most notable is where the world’s wealth itself is located. As Nicholas Holt, Research Manager for Knight Frank Asia Pacific explains, “Looking at the distribution of millionaires — these are high net worth individuals with US$100 million or more in investable assets — a couple of things pop out straight away,” he begins. “Today there are more centa-millionaires in China, Southeast Asia and Japan together than there are in either the EU or North America. 2011 saw a 7 percent increase in the number of centa-millionaires around the world and in the next five years the number will grow by 37 percent. That’s 23,000 new centa-millionaires, and the growth is concentrated in Asia and Africa.” That’s likely because the world’s economic centre of gravity has shifted east in the last few years to be in line with Turkey and Egypt. By 2050 Knight Frank predicts it will be firmly planted between China and India.
When it comes to investing assets, however, the report’s global city survey, which asked Citi clients what the top cities were — in terms of business, education and lifestyle among other factors — the shift heads west again, with only a few exceptions. The top ten comprises established cities — London New York, Hong Kong, Singapore, Berlin — with Beijing and Shanghai nosing into that elite group. But despite the wealth shift, the same respondents believed that in 2022 London and New York would still be at the top of the list, but the other prime markets, like Geneva, will simply swap positions and include BRIC mega-city Sao Paulo.
Emerging market wealth is flowing into mature markets as so-called safe havens are taking on a stronger role. “Governance, corruption and arbitrary rule in many emerging markets are seen as a threat to wealth, and HNWI are looking very carefully at where to put their money,” notes Holt. “The Arab Spring, the Russian election and the Eurozone crisis have pushed money into markets like New York, but the search for a safe haven has pushed prices up in Miami, London, Vancouver and Toronto.” Which is not to say the havens are pristine. Perceived political risks exist in those same mature markets — risks like mansion, tycoon and profit taxes are raised in addition to “sickly economic performance,” as Holt calls it, in traditionally (formerly?) powerhouse economies. “The narrative around prime residential markets is not strengthening. We’re likely to see more divergence and volatility over the next year,” states Holt.
Volatile or not, options do exist for investors looking for safety, some just off the conventional radar. As Yvonne Siew, Head of Real Estate for Citi Private Bank, notes, “What I think is interesting right now, one of the key strategies for our [HNWI] clients is that they tend to want to co-invest with owners or developers. Meaning they’re looking for established developers with an established track record in a specific sector or country in key locations.” Reducing risk by minimising exposure is a tried and true strategy that is clearly maintaining a presence. And though they occasionally seem dodgy, “We’re also seeing a gradual development of the club-like structure,” Siew says. At one time tarred with the “time share” label, clubs now making a mark see key owners or developers putting together three or four deals per year so that clients can pick and choose the kind of investments they want. Siew also points to real estate funds that invest in niche opportunities by (again) established developers, as rounding out the big three strategies for 2012.
But it’s not all doom, gloom and danger. Property is still trumps gold and art for most investors — HNWI or not. Regardless of the rollercoaster nature of international investing this year, Holt concludes, “Fifty-seven percent [of the respondents] expect to increase their property portfolio in 2012. For high net worth individuals, property continues to be the asset class of choice.”