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City & Country: ‘More demand for secondary assets, locations’

THE recovering economies of the eurozone and US have led to a higher appetite for risk among global ultra high net worth individuals (UHNWIs). “In the past year, we observed that there was more demand for secondary assets and locations, such as Birmingham and Manchester in the UK or Boston and Denver in the US,” says Nicholas Holt, Knight Frank’s head of Asia-Pacific research, in an exclusive interview with City & Country.

Holt: The main battleground is Asia, where a handful of locations are slugging it out in the hope of establishing a clear lead as the region’s alpha urban hub


Holt was in town for the launch of Knight Frank’s eighth Wealth Report on March 12. The report, which is released annually by Knight Frank, was put together with leading wealth intelligence provider WealthInsight to provide comprehensive wealth distribution data. It covers around 90 different countries and cities.

The report provides insights into wealth trends, prime residential and commercial property markets and the attitude of the UHNWIs to property and other investments. Other factors, such as lifestyle, education, economics and politics, are also considered in the report.

According to Holt, this new trend is a departure from the investment mood in the previous years, where the world’s ultra rich were observed to have invested heavily in “safe” prime blue chip markets in central business districts in prime cities such as London and New York.

“Recently, a group of high net worth Chinese from Guangzhou took up an office block in Birmingham,” he says.

According to Knight Frank, Asian markets dominated this year’s Prime International Residential Index (PIRI). Many cities affected by the 2008/09 global financial crisis, such as Dublin, Dubai, Madrid and Milan, are on the road to recovery.

Asian markets dominate residential price growth

Asian cities stood out in global prime residential property price growth last year, led by Jakarta with 37.7%.

Asian towers dominated the new Knight Frank Skyscraper Index with Hong Kong boasting the most expensive skyscraper space in the world while Kuala Lumpur was ranked 17th.

Between 2012 and 2013, Jakarta led the pack in average price growth, followed by Auckland (28.8%), Bali (22%) and Christchurch and Dublin (17.5%).

According to Holt, Jakarta and Bali have consistently been in the top five positions in the past three to four years. “This was driven largely by local demand. There is a huge concentration of wealth in Jakarta,” he says, adding that the market is playing catch-up as there is not enough stock in it to cater for the demand for quality products.

Bali is also the recipient of money flowing in from Indonesia’s wealthy as well as international second homebuyers. “The demand for beachfront land has now spilled over to the neighbouring area of Lombok,” Holt points out.

He says the growth in Auckland and Christchurch was driven by strong domestic demand as well as increased transactions by Asian investors.

Meanwhile, properties in Dublin are now seeing a resurgence following an overhang in 2008. The recovery had been promising thus far, buoyed by the Irish diaspora and foreign buyers. “We expect recovery to continue in Dublin as there is a lot of optimism about the economy now,” says Holt.

Property still a popular platform
According to Knight Frank, property continues to be one of the top investment choices for UHNWIs. When polled, most UHNWIs still showed a healthy appetite for properties in their investment portfolios.

Globally, 47% responded that they would raise their portfolio while another 46% said they would maintain it. Only 7% of those polled said they would lower the amount invested in properties.

About 45% of UHNWIs polled in Asia stated that they hoped to increase their investments in property, another 40% hoped to maintain their current portfolios while 12% have plans to reinvest their money somewhere else. Interestingly, the number of UHNWIs in Asia is expected to overtake North America’s 58,588 by 2023.

In Malaysia, 38% of the respondents said they would continue to grow their property portfolios. The majority of respondents hope to maintain what they have accumulated while another 8% stated that they will put their cash in other investment channels.

On cross-border developments as a growing phenomenon, Holt says, “Rising global mobility of people and capital has been steering prime residential markets. This is evident in the Asian-led globalisation of prime residential development activity.

“Last year, over 76% of total capital flow into the developed markets of the UK, the US and Australia had its origins in China, Singapore, Hong Kong, Malaysia and India. Brand building, diversification, growth and selling back to domestic buyers have been the key drivers.”

UHNWIs in Malaysia more sophisticated
Kuala Lumpur climbed two rungs from last year to 26th place on PIRI with residential property price growth at 5.5% compared with 2012’s 1%.

Says Sarkunan Subramaniam, managing director of Knight Frank Malaysia, “Despite a drop in total transaction volume, we are seeing an increase in average prime transacted values as high-end products remain in demand, especially in the KLCC area. We are also seeing a trend towards smaller units with higher per square foot value.”

Goh Cheng Ean, executive director and country head of high net worth banking at United Overseas Bank (M) Bhd, believes that properties in Malaysia will continue to attract local and foreign investors who believe in the country’s long-term economic potential.

“UHNWIs in Malaysia are now more sophisticated. They are confident and invest with a long-term view,” she says, adding that Malaysians also have more exposure to developed markets. According to the Wealth Report, the number of UHNWIs in Malaysia will jump 33% to 739 by 2023 from 557 last year.

“Education continues to be a big driver for Malaysian UHNWIs, for which purpose they would invest in London, Melbourne and Sydney,” says Sarkunan. According to Knight Frank, about 25% of UHNWIs polled in Malaysia would consider purchasing a second home in the next 12 months.

Commenting on the recent implementation of additional cooling measures, Sarkunan says they are “mild” compared to those imposed by other countries in the region. “The effect on high net worth individuals would be minimal. It is the middle class that would be most affected.”

Globally, London takes the top spot again for UHNWIs, but New York is expected to topple it in 2024. “History, location and their long-established wealth means that the position of London and New York looks unassailable, at least for now. It is further down our leader board that the real city wars are being waged. The main battleground is Asia, where a handful of locations are slugging it out in the hope of establishing a clear lead as the region’s alpha urban hub,” says Holt.

 


This article first appeared in The Edge Malaysia Weekly, on March 17, 2014.

 

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