Properties adjacent to New York's Central Park; image courtesy of Sotheby's
Most ultra-high-net-worth consumers make investments in residential real estate, with 79 percent owning at least two homes, but for those in emerging markets, these property purchases are often for more than pleasure, according to a new report from Wealth-X and Sotheby’s International Realty.
While many UHNW individuals make their decision to buy a secondary home as a means toward personal enjoyment or financial investment, a number of affluents are now using property for the opportunities afforded to them through their purchase. With the economies and political climates of a number of countries in flux, more wealthy consumers are likely to be looking for these “opportunity gateways,” seeking citizenship or financial security outside of their home nation.
“UHNW Luxury Real Estate Report: Homes As Opportunity Gateways” is the third publication from Wealth-X and Sotheby’s. For the purposes of the report, UHNW is defined as having $30 million or more in assets.
Expanded interest
Wealth-X’s UHNW Residential Real Estate Index, which it uses to track consumer confidence through average price per square foot in key markets, has risen for six consecutive quarters.
Wealthy consumers use real estate as a long-term investment strategy or to satisfy a desire to be near a beach or ski resort. Most often, these purchases are made domestically, but lately there has been an influx of investments made outside of an affluent’s home country, particularly by those from emerging markets.
Sotheby's listing in Aspen, CO
Twelve percent of the secondary homes purchased by consumers from BRIC nations are located outside of their residential country, typically due to economic or political unrest.
China in particular has seen economic fluctuations, with its Shanghai Index taking tumbles over the past month. The nation has also devalued its currency, deflating it in comparison to the euro and U.S. dollar (see story).
In an effort to diversify their assets, Chinese UHNW are looking to more stable markets such as the United States. Among foreign homeowners in the U.S., the population of UHNW Chinese buyers now follows only those of Canada and the United Kingdom.
As a result of foreign interest, New York and London real estate prices have surged over the past five years.
Sotheby's property listing in London
Emerging market consumers looking for more affordable options are therefore looking toward Pacific cities such as Sydney and Vancouver where the rise in property prices has not been as steep. Australia’s proximity to China has made it particularly attractive for Chinese affluents.
High wealth consumers frequently look for opportunities for dual citizenship, especially those who come from the Middle East. Being a member of two nations affords benefits such as security, tax efficiency, easier travel, flexibility for children’s educations and access to investment options limited to citizens.
Buying a home in a desired country can ease the process to citizenship. By making an investment and waiting for a number of years, consumers can become a citizen.
Minimum investments necessary vary from nation to nation, from $200,000 in Dominica to $700,000 in Spain.
Twenty nations offer this type of path to citizenship, with most located in Europe, North America or the Caribbean. Attractive tax policies make citizenship in places such as Malta, São Paulo and The Bahamas especially attractive.
Sotheby's property listing in São Paulo
Seeking security
It is not only those in emerging markets looking to secure their wealth in the Caribbean.
A confluence of positive developments is recasting the Caribbean as one of the top regions for ultra-high-net-worth consumers looking for sound investments, according to a previous report by Wealth-X.
Barbados in particular is a market with promising real estate opportunities due to lax regulatory policies and a burgeoning luxury landscape. Behind-the-scenes of this boom in roving real estate interest is an aging UHNW population looking to protect wealth (see story).
In general, the high-net-worth population is taking action to safeguard its finances through alternative means.
As the asset management industry incorporates improved technology, investments in alternative capital will increase to an expected $15.3 trillion by 2020, according to a new report by PwC.
To evade the tumult of the global economy, affluent investors are increasingly looking for alternative investment channels that have sustainable, long-term returns. While alternatives have always been sought, the rise of digital asset management has increased the urgency by arming consumers with more information and channels for communication (see story).
With uncertainty in many different corners of the globe, this diversification of assets into investments such as real estate is likely to be a continuing trend among the wealthy.
Final Take
Sarah Jones, staff reporter on Luxury Daily, New York