Properties for the Uber Rich

Knight Frank tells us where the property trends lie for the 1 percent

By: Jotham Lim

If you happen to stumble upon USD $30 million, what would you do with the money? It is a great shower thought to ponder for many of us, but for certain ultra-high-net-worth individuals (UHNWIs), this is a legitimate question that demands serious answers.

The Rich Get Richer

The number of people concerned with their vast quantities of wealth has shot up in the past few years with no signs of stopping. According to GlobalData WealthInsight, the UHNWI population is forecasted to grow by 22% over the next five years, many of them centred around China and India.

In 2019, the number of USD millionaires worldwide will exceed 20 million for the first time in history. This is in spite of the volatile global political landscape, which includes Brexit and the US-China Trade War.

Dr Ian Bremmer, president and founder of Eurasia Group, even commented that the US-China trade tension would have limited effect on the growth of the wealthy population. “Any trade tensions between the world’s two largest economies draw outsized attention,” he points out.

So, outside of hosting lavish parties and purchasing a luxury yacht, how does the uber-rich actually spend their money?

Investing Globally

No two investment portfolios are the same, but there is a recurring pattern of investors looking to park their money outside of local borders, with plenty of good reasons behind it.

Some countries are actively enticing wealthy individuals to relocate to their country through favourable, yet controversial tax regimes. Moldova and Montenegro are providing citizenship and permanent residency to these UHNWIs through investment schemes. Portugal is also issuing golden visas to wealthy individuals in return for financial investments.

According to the latest Knight Frank Wealth Report, 36% of UHNWIs already hold a second passport, with 26% planning to emigrate. Investors are looking and thinking globally in order to seek higher returns, and possibly, dabble in currency speculation.

Although gold is quickly becoming the focus of many wealthy individuals in China and Malaysia according to the Knight Frank Attitudes Survey, real estate still makes up 23% of most Asian UHNWI’s portfolios.

In regards to the importance of real estate investment, James Buckley, Executive Director of Capital Markets in Knight Frank Malaysia, comments, “There is a lower correlation between real estate and public markets, hence properties are well positioned to weather downturns and are an opportunity to diversify and reduce volatility in your overall portfolio.”

Where Are They Buying?

In a survey of 600 private bankers and wealth advisers, it turns out that Australia is the destination of choice for ultra-rich Asians who are looking to invest in properties overseas. In the Attitudes Survey, 45% of Asian UHNWIs indicated that they would prefer to invest in Australian properties, a portion that is significantly higher than that of the United Kingdom and Canada.

Dominic Heaton-Watson, Associate Director from Knight Frank Malaysia, added, “Malaysians have long had an affinity with these destinations, particularly Melbourne, New York and London, with regards to quality education, knowledge, familiarity, language, culture and transparent legal systems playing important roles in their decision as well.”

Education plays a key role in influencing the investment decisions of Asian UHNWIs, as many send their children abroad for higher education. According to the survey, 96% of Malaysian uber-rich are expected to continue the trend of sending their children overseas for education.

“The ultra-wealthy are becoming increasingly strategic in their destination choices. As a result, they are investing in additional homes in cities and countries where they see greater levels of stability,” says Victoria Garrett, Head of Residential Asia Pacific at Knight Frank. “Australia ticks all the boxes for stability, lifestyle, education, wealth preservation and capital growth,” she added.

Popular Types of Investment Globally for Private Capital in Terms of Volume (Q3 2017 - Q3 2018)

Source: RCA Capital Analytics

Countries That Asian UHNWIs Are Most Likely to Buy a New Home In 2019/2020

Source: The Knight Frank Wealth Report Attitudes Survey 2019

How About Commercial Investment?

The Knight Frank Wealth Report indicates that UHNWIs plan to invest in commercial property. The latest report from RCA Capital Analytics referred to in the presentation shows that commercial properties maintain a strong foothold as one of the most popular types of global property investment for private capital. Office spaces and retail lots combined take up more transactional volume than residential apartments.

James Buckley says, “In Malaysia, we have witnessed a notable increase in the number of commercial properties coming to market. It is really important to set the right asking price and for owners to have realistic price expectations.”

Knight Frank hints at the growing interest in specialised assets such as Senior Housing and Care facilities. Whilst still in the research phase, the group believes that in tandem with Malaysia’s demographic shift, there lie tremendous opportunities.

What About the Local Market?

Despite growing interest in the global market, Malaysian UHNWI clients still prefer to invest in the local market. According to Knight Frank Estate Highlights, the Budget revision on real property gains tax (RPGT) and stamp duty fees is unlikely to have a significant impact on the high-end condominium sector. Developers and investors’ sentiments remain positive, with noticeably more completions and launches of high-end properties in Malaysia despite ever-increasing oversupply issues in the luxury sector. Prices in the secondary market have remained resilient as well.

The report states that improved transparency and accountability by the new government and the recent gazetting of the long-awaited Kuala Lumpur City Plan (KLCP) mean the entire Kuala Lumpur high-end condominium market remains optimistic, albeit highly cautious, with pockets of opportunities for recovery in the mid to longer term.

How About Us?

It is interesting to see how wealth moves around amongst the top echelons. Certain doors can only be opened once a certain net worth is reached. Is global property investment one of those forbidden doors? Dominic Heaton from Property Insight suggests that investing in the Australian property market may not be as difficult as one might expect.

“Depending on individual circumstances, investing in overseas properties may be the best and wisest choice. But let’s say a typical upper-middle-class Malaysian could afford a property in Melbourne, especially if their children are studying there,” he said. The rich should not dictate the investment decisions of the common working adult. However, if you are in the midst of transitioning to become a high-net-worth individual, it does not hurt to refer to what other wealthy individuals are doing and start from there.