World sees more ultra-rich individuals; prime home prices up by 1.9% in 2020: Knight Frank
5 March 2021
The population of ultra-high-net-worth individuals (UHNWI) in the world has increased by 2.4% over the past 12 months to more than 520,000, according to Knight Frank’s The Wealth Report 2020.
In Asia, the number of UHNWIs grew the most by 12%. The report projects that by 2025, Asia will be home to 24% of all UHNWIs, up from 17% a decade earlier. China is forecasted to have a 246% growth of very affluent individuals in the decade leading up to 2025. On the other hand, there was a fall in the number of UHNWIs in Latin America (-14%), the Middle East (-10%) and Russia (-21%).
The report notes that the countries registering the largest declines were also some of the hardest hit by the pandemic, such as Italy, France and Spain, which saw their UHNWI populations fall by 3%, 9% and 14%, respectively.
Data used was from the “Knight Frank Wealth Sizing Model and Attitudes Survey”, which reflects the views of private bankers and wealth advisers during 4Q2020. Respondents offered opinions on the clients and portfolios under their management.
Prime residential locations and prices
The report analysed 100 locations around the globe to see where UHNWIs are choosing to live, invest and spend. Although there was a “temporary exodus from cities” when lockdowns were implemented last year, Knight Frank is of the opinion that the move is temporary and urban cities still claim top spots in the City Wealth Index.
London and New York sit at the top, with Paris ranking third. Tokyo is in fourth place, while Hong Kong is in fifth. The report also notes that in the near future, a focus on innovation and well-being is key to attracting UHNWIs.
Additionally, according to the Knight Frank’s Prime International Residential Index, which investigates the key trends that shape luxury global property markets, prime residential prices registered 1.9% growth across 100 locations around the world. This was higher than 2019’s growth of 1.8%.
The highest growth was found in Auckland, where average prices ended 18% higher. This could be due to New Zealand’s handling of the Covid-19 crisis, ultra-low mortgage rates and a limited supply of quality stock.
The next three rankings are for Shenzhen (+13%), Seoul (+12%) and Manila (+10%). On the Chinese mainland, property sales volumes across 30 major Chinese cities had returned to the average daily levels observed in 2019, according to data from Capital Economics.
Asia Pacific prime residential prices continue to rise amid the Covid-19 pandemic, with 14 out of 23 prime markets in the region recording price growth in 2020. “The low borrowing costs and the improved vaccine optimism seen towards the end of 2020 aided some of the prime residential markets in Asia Pacific through the pandemic storm,” says Victoria Garrett, head of residential of Asia Pacific at Knight Frank.
Singapore emerged top most desirable for wealthy Asian home buyers within Asia and the fourth most desirable globally. This could be attributed to its stability and “safe haven” attributes.
“Unlike many other cities in the Asia Pacific, prices of prime homes in Singapore did not grow in a similar fashion and instead remained relatively unchanged, contracting by a slight 0.2% annually in 2020,” observes Leonard Tay, head of research at Knight Frank Singapore.
When wealthy Asians were looking to purchase a new home, Singapore ranked as the top Asian territory of choice ahead of Japan, but behind the US, the UK and Australia, says Tay. Buyers from India, Japan, Malaysia and South Korea ranked Singapore in their list of top five locations when considering investment homes abroad.
Although prolonged and continuing travel measures prevented potential foreign investors from physically viewing units, resulting in an overall 20.4% y-o-y decline in sales of luxury homes in 2020, Singapore continues to be an oasis for investments due to the stable political environment as well as effective containment of the Covid-19 outbreak, says Tay. Singaporeans preferred their home country to other locations, citing proximity to leisure facilities, amenities as well as transport links as an important factor, he notes.
Globally, the survey reveals that respondents prefer a home with their offices within or close by. Access to transport links are important to Asian buyers who prefer urban areas. On the other hand, for Australasia buyers who prefer rural areas, homes with an outdoor space such as a garden or a balcony, or that are close to green spaces, are preferred. In North America, there was also increased demand for suburban space, waterfront homes and properties near to mountains.
Some of the key factors that affected prime residential prices include a rise in domestic demand, new government taxes that curb wealth accumulation, and currency shifts, which can mean sizeable discounts on properties.
“Noticeably, there’s a change in strategy for the ultra-wealthy due to the global uncertainty that the Covid-19 pandemic has caused. As a result, they are investing in additional homes domestically wherever they can due to scarcity of stock, followed by second homes in cities and countries that best fit their needs after re-evaluating their lifestyles in the new normal,” says Garrett.
Property investment trends
Asset prices have surged amid lower interest rates and more fiscal stimulus globally. 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 as the survey reveals that a quarter of UHNWIs plan to invest this year.
In terms of location, Europe remained a relatively safe haven in 2020 and Knight Frank forecasts that Germany and the UK will be among the key recipients of real estate investment in 2021. South Korea will also see an increase in real estate investment by private investors, following double-digit stock market gains last year.
With 43% of investors more interested in environmental, social and governance focused investments compared to 12 months ago, green and energy-efficient buildings will experience a rapid increase in demand.
Knight Frank also notes that there will be significant demand and opportunities in the data centre space due to the rise of video conferencing, remote file access, digital content and social media platforms, as well as online shopping,
The report also asserts that the office sector will continue to play a prominent role in global real estate portfolio allocations, despite a rise in work-from-home arrangements. The sector still contributed around 35% of global real estate investment volumes in 2020, based on provisional data from Real Capital Analytics.
Using an augmented Black Litterman model to predict how private equity allocations to the office sector might change, on the assumption that it is a leading indicator of future market trends, the report suggests that the office sector could rebalance to around 21% private equity global holdings, from 39%, by the late 2020s, with an increase in logistics and non-traditional sectors such as the private rental sector.
Additionally, private investors will allocate significant equity to income-producing assets in locations known for innovation and attracting talent. These are where universities, strong research facilities and other industry partners are clustered at. Innovation-led cities include the Oxford-Cambridge-London “Golden Triangle” in the UK, the Silicon Valley and Boston in the US, as well as Tokyo in Asia. The growing life sciences, tech and advanced data analytics sectors will create new opportunities for rethinking office space in key markets.
While there could be possible reduction in private equity allocation in the office sector by other investors, the overall size of the private equity sector is likely to increase, the report concludes.