Ultra-high-net-worth (UHNW) individuals form a central part of the market, and can help us gauge the overall temperature. Here’s what UHNW buyers are doing with their money.
Many people wonder why they should care about the stock market when its numbers can seem unrelated to day-to-day economics. Similarly, you might ask why—amid a global pandemic and the related economic crisis—should we be interested in what the ultra-wealthy are buying? Simply put, if we are to understand and predict market and asset performance then they, both the stock market and ultra-high-net-worth (UHNW) individuals form a central part of the story. The Urban Land Institute’s (ULI’s) “2021 Wealth Report” assesses how the fortunes of UHNW individuals are changing, where they spend time, what they invest in and what they are likely to do next. Here are some highlights from the report:
Global pandemic response supported wealthy individuals
With lower interest rates and more fiscal stimulus, asset prices have surged, driving the world’s UHNW population 2.4% higher over the past 12 months to more than 520,000. The process was seen across North America and Europe, but it was Asia, with 12% growth, that saw the real upswing. The expansion in wealth was not universal, with a fall in the number of UHNW individuals in Latin America, Russia and the Middle East as currency shifts and the pandemic undermined local economies.
Asia has seen/will see the greatest wealth accumulation
The United States is and will remain the world’s dominant wealth hub over ULI’s forecast period, but Asia will see the fastest growth in UHNW individuals over the next five years, at 39% compared with the 27% global average.
By 2025, the ULI report predicts Asia will host 24% of all UHNW individuals, up from 17% a decade earlier. The region is already home to more billionaires than any other (36% of the global total). The Chinese Mainland is the key to this phenomenon, with 246% forecast growth in very wealthy residents in the decade to 2025.
Inequality will increase wealth accumulation risks
While COVID-19 is viewed as the biggest single risk to future wealth creation, nearly half of ULI’s Attitudes Survey respondents (wealth managers and private bankers) expect the growth in wealth inequality to fuel demand for policies aimed at curbing imbalance—specifically wealth taxes—with new or proposed plans in Argentina, Canada and South Korea likely to be replicated elsewhere.
The pandemic reduced globalism
ULI’s research determined that international travel will remain weak, with 84% of respondents expecting to continue to travel less this year. Where this trend could become more entrenched is the notable drop in demand for international education, which the survey also revealed.
Approximately 11% of home purchases made by ultra-high-net-worth Asian buyers are expected to be driven by educational motives. This means we may see a rise in permanent family relocations to education hubs, with London the main target. Despite a reduced desire to travel, nearly a quarter of ultra-high-net-worth individuals are planning to apply for a second passport or citizenship—a remarkable 50% growth in a year. ULI found that there is a growing tension between rising transparency concerns over citizenship-by-investment schemes and a need to plug gaps in government finances through these schemes.
Long live the city
ULI research determined that the pandemic has introduced the potential for rebirth in international cities. Expect to hear more about the 15-minute city, green cities, place-making and the coming redevelopment boom. Development land is the third most popular property investment pick this year for ultra-high-net-worth individuals. City leaders in 2021 for wealth, investment, business heft and innovation were London and New York, and for wellbeing: Helsinki and Madrid.
The pandemic is driving up home prices
ULI’s assessment of the world’s leading prime residential markets confirms that average price growth accelerated over the past 12 months. While Auckland led the pack with an 18% uptick, reflecting New Zealand’s sure-footed handling of Covid-19, even those markets hard hit by the pandemic are seeing growth. Low mortgage rates, a search for space, privacy and changing commuting patterns are helping push prices higher.
Additional survey information revealed that 26% of UHNW individuals are planning to buy a new home in 2021, with the biggest driver the desire to upgrade main residences. ULI’s survey points to a growth in demand for rural and coastal properties, with access to open space the most highly desired feature. The pandemic supercharged demand for locations that offer a surfeit of wellness—mountains, lakes and coastal hotspots, for example. This demand will help fuel price rises of up to 7% for key markets this year.
Expect more private investment in property
Despite overall property investment volumes falling in 2020, the capital deployed by private investors was still 9% above the 10-year average, far stronger than the 6% fall in the amount committed by institutional investors. This theme will continue through 2021, with a quarter of UHNW individuals planning to invest this year. In addition to development land, residential investments and logistics will lead requirements.
The pandemic is driving real estate innovation
Technology during the pandemic worked to concentrate wealth. However, ULI confirms that tech disruption is viewed as a key post-pandemic area for investment, driving demand in the still embryonic data centre market and the burgeoning life sciences sector. Spurred by the pandemic, life sciences, tech and advanced data analytics are creating new opportunities for rethinking office space in key markets.
With 43% of investors more interested in environmental, social and governance (ESG)-focused investments than 12 months ago, expect rapid growth in the demand for green and energy-efficient buildings.
Luxury investments confirm the ongoing search for returns Despite logistical challenges, investors continued to drive values higher for key collectible assets over the past year—led by handbags (+17%), fine wine (+13%) and classic cars (+6%). However, a shift to private sales as auctions were put on hold saw art market values decline. With disruption to these most global of markets likely to continue through the first half of 2021, it will be the second half of the year when investors will likely see the longer-term direction for investment performance.