Ultra High Net Worth (UHNW) individuals are big players in the world’s real estate market, not only because many of them have derived huge fortunes from the industry, but also because they choose to own residential properties both for investment and enjoyment. In this post, we look at real estate holdings for UHNW (defined as individuals with net worth of US$30 million and above) and billionaires, drawing on Wealth-X’s unique proprietary database and the exclusive results of a joint report between Wealth-X and Savills.
Amidst concerns over income inequality, the ultra high net worth (UHNW) community has seen both its population and wealth grow in recent years.
By region, we see that the UHNW population holds a large amount of its regional wealth. This is particularly the case for Latin America where a quarter of the region’s wealth is held by less than 15,000 individuals.
The distribution of the world’s UHNW population and wealth has changed over the last decade, with Asia and other emerging markets becoming ever larger hubs of the world’s richest few. That being said, North America and Europe remain in the lead, together accounting for 65% of the world’s UHNW population.
UHNW CONSUMPTION PATTERNS
On average, UHNW individuals hold 25% of their net worth in liquid assets, and they are significant players in the various luxury markets, accounting for 100% of super-yacht sales and almost 35% of the world’s art sales.
Remarkably, the world’s ultra wealthy hold a fifth of their wealth in real estate assets. While Europeans and Asians account for more than 78% of total property investments, in comparison North Americans are significantly underinvested.
Age, gender, culture and personality significantly affect spending decisions and total spending per capita. For example, Chinese UHNW individuals have a lower average age than their peers in Asia and the rest of the world, and they spend twice as much on luxury purchases than on investment purchases (see here an article we published in 2012 on the rise of Chinese property investors).
The desire to invest in tangible goods that also have a purpose in everyday life is common and real estate is one of the most prevalent among such assets, regardless of differences in characteristics (style trends often depend on the nationality of the buyer). According to Wealth-X, property accounts for a large share of the world’s UHNW population’s holdings, totalling over US$5 trillion or 3% of the world’s real estate value, even if accounting for only 0.003% of the world’s population. Notably, despite these large fortunes, the majority of the world’s UHNW real estate is directly owned for residential purposes.
With regard to gender differences, women tend to place a higher value on real estate investments than men who are more attracted to shorter lived goods such as jets, super yachts and luxury cars.
INVESTING IN REAL ESTATE
There are distinct regional patterns in real estate ownership, but overall residential property is of foremost importance to UHNW individuals, extending to second homes (or more). Farms and other landed properties are also significant holdings, particularly in Europe, Africa or Oceania. Commercial real estate is less likely to be owned as personal holdings, although Latin American UHNWIs sometimes diversify their personal portfolios to include commercial properties as well.
Although domestic real estate holdings are predominant, some cities attract a large number of international UHNWs, with London being the most prominent market for foreign real estate investments worldwide. Other international financial centers like New York, Singapore and Hong Kong continue to see high trading volumes. In Europe, the most expensive streets in Paris have also performed well, propped by Middle Eastern and other foreign buyers.
Alongside political stability and economic growth, international investors tend to focus on issues such as lifestyle and the quality of education. In coming years we expect that luxury property markets will become increasingly international due to long term trends such as globalization (of trade and lifestyle), wealth redistribution and easier mobility.
More peripheral high-end markets with good prospects like Brazil (especially thanks to the World Cup and the Olympics), China or even Germany, as well as markets where property prices have fallen in value in recent years like Spain, Greece, Florida and other high-supply US locations should benefit the most.
REAL ESTATE: THE BUSINESS OF THE UHNW
Only 5.4% of the world’s UHNWIs have derived their wealth from the real estate industry, but these millionaires can boast a much higher average net worth than the rest of the UHNW population.
With the exception of Latin America in all other regions UHNW individuals who have made their fortune in the real estate industry are, on average, 3 to 5 years older than other UHNW individuals. This difference suggests that wealth derived from the real estate industry may take longer to generate, possibly because individuals need more time to increase their portfolio.
Interestingly, the average net worth of UHNW individuals engaged in the real estate industry is always higher than the region’s average. Asian UHNW individuals engaged in the real estate industry stand out, with an average net worth four times higher than the average Asian UHNW individual.
SPECIAL CASE: BILLIONAIRES
Real estate holdings represent 2.6% of the average billionaire’s net worth, totalling US$78 million per billionaire. This compares with the 2% they hold in other luxury goods. In total, the world’s 2,170 billionaires’ real estate holdings account for US$169 billion with the average billionaire owning four homes, each one worth nearly US$20 million.
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This post has been written in collaboration with Wealth-X, the world’s leading ultra high net worth (UHNW) intelligence and prospecting firm with the largest collection of curated research on UHNW individuals.
What is the trend for luxury property investments in the coming years? Are millionaires shifting their attention from trophy assets to riskier investments? Will the ultra-rich compete even more with institutional investors? Share your view with our readers.
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