HNWIs Keep Faith In Real Estate
Wednesday, April 14, 2010

While there remains some uncertainty over the state of the global economy, property remains a core part of the high-net-worth investor's portfolio, according to a new report.

The latest results from the 2010 edition of the Knight Frank/Citi Private Bank Wealth Report show that luxury house prices fell on an annual basis in almost 75% of the locations tracked by Knight Frank's Prime International Residential Index in 2009.  However, the report suggests that the typical ultra-high-net worth buyer of prime property has emerged from the financial crisis relatively unharmed, and current price falls will be viewed by many wealthy investors as a buying opportunity.

"Our clients look for opportunities when everyone else is circling the wagons," commented David Poole, head of Citi Private Bank, UK. "Buying becomes opportunistic in a downturn, particularly as people turn to hard assets such as property when other assets experience dislocation.”

According to the report, key Asian cities showed "exceptional growth" last year, including Shanghai (+52%)  and Hong Kong (+40.5%). Other prime city locations also saw an improvement in performance, including London (+6.1%), and Washington D.C. (+5.6%).

The hardest hit cities appear to be those where the property boom accelerated prior to the credit crunch, such as Dublin and Dubai.

“The Wealth Report 2010 reveals that the global market for prime residential property polarised during 2009," observed Liam Bailey, head of residential research at Knight Frank. "While some Asian cities saw phenomenal growth as China recovered strongly from the global recession, most locations around the world recorded price falls."

“I do believe, however, that we will see this gap narrow again in 2010," Bailey added. "It seems unlikely that property prices in cities such as Shanghai can continue to grow at these kind of rates, and in many locations there was positive growth in the latter half of 2009."

Interestingly, the report suggests that government intervention following the global credit crisis means capital cities such as Washington D.C. and Beijing are becoming increasingly important financial centres.

"The fiscal intervention by the administrations in Beijing and Washington DC means that these cities are now viewed as financial as well as administrative hubs. This is already having an impact on each city’s prime property market as more banks gravitate towards them," noted Bailey.

“Government intervention, however, does not always have a positive impact on a city’s desirability. Even though prime property prices increased strongly in London last year, the city surrendered it position at the top of the Knight Frank Global Cities Survey, which ranks cities according to various factors of importance to the world’s wealthy. London’s reputation has undoubtedly suffered in light of new UK tax legislation and the government’s attack on City bonuses," Bailey added.

Despite ongoing global economic uncertainty, Bailey says that property "remains a core part of the wealthy’s investment portfolios."

"It accounts for one third of their investments and the majority expect it to grow in value this year. Current price falls will be viewed by many as a buying opportunity, but as the data from our Prime International Residential Index shows, these windows of opportunity do not always remain open for long," he concluded.