Wealthy Keep Faith In Prime Property
Tuesday, June 14, 2011

Global wealth growth and increasing geopolitical turmoil is boosting international demand from wealthy investors for luxury property in key locations such as New York and London, although emerging centres such as Mumbai and Shanghai are coming up fast on the rails, according to the results of a new study.

The 2011 edition of The Wealth Report, produced by Citi Private Bank and Knight Frank, shows that prime property remains "incredibly important" to the world's wealthiest people. The report shows that, on average, property accounts for 35% of high-net-worth investment portfolios, second in importance only to investing in their own businesses.

Almost 40% of the 85 prime city and second-home locations in 40 countries that were analyzed by the report's Prime International Index rose in value during 2010, 17 of them by 10% or more. A number of locations, however, saw values fall significantly. These include Dublin (-25%) and Dubai (-10%). Six of the 10 biggest risers were in Asia, highlighting the region's continuing economic surge, but established centres such as London and New York also performed strongly.

According to the report's unique Attitudes Survey, lifestyle and investment are the key drivers for luxury second-home purchases, but education is of growing importance, especially among Asian ultra high net worth individuals; 29% of second-home buyers in south east Asia cite "education of children" as their main second-home purchase reason. For those who change their main country of residence, tax is the biggest motivator.

Almost two thirds of the respondents to the survey (64%) will increase their charitable giving over the next five years. Spending on art, fine wines and private jets and yachts will also rise significantly.

New York and London remain at the head of The Wealth Report's Global Cities Index, but respondents to the Attitudes Survey predict that Asian cities such as Shanghai and Mumbai will soon start to close the gap substantially; Mumbai has increased in importance by 118%, Shanghai by 91%, and Sao Paolo by 66%. However, New York and London are expected to enjoy their pre-eminence for a few years yet.

"The most reassuring element to note for New Yorkers and Londoners is that the two top spots don’t look set to change over the next 10 years, although the current chasm between these two cities and the rest is set to close rapidly," writes Liam Bailey of Knight Frank.

With the exception of New York and London though, the remainder of the index looks set for a "total makeover" in the coming years, says Bailey.

"Some of the established Asian centres, such as Singapore, Hong Kong and Tokyo, appear at risk of relative weakening compared to China’s rising stars of Beijing and especially Shanghai," he notes. "The biggest fallers seem set to be Geneva, Zurich, Washington and San Francisco, while Vancouver falls out of our future top 20 entirely."

"The three biggest winners point to a rebalancing within the Brazil, Russia, India and China (Bric) grouping, with the main cities to watch being Mumbai, Moscow and Sao Paulo," Bailey continues. "They look set for a dramatic upswing in their status, with each expected to climb by between six and eight places over the next decade."

According to the report, luxury property price growth was highest in Shanghai with a 21% rise. London and New York saw increases of 10% and 13% respectively.

Monaco remains the most expensive residential location in the world, followed by London.