7 March 2013 (Hong Kong) – According to the latest 2013 Wealth report released by Knight Frank and Bank of China International Ltd., London and New York remain the top places for the world’s ultra-high net worth individuals (HNWIs) to live, invest and play but Asian cities are fast catching up.
Highlights:
• Large Asian cities see the most dynamic price growth in the past year
• China’s real estate market drives value increases in the global prime market
• The growth in number of billionaires in Asia by 2023 will more than double that of Europe
• Chinese investors’ behaviour reshapes the global profile of the HNWIs
• The fastest growth in wealth creation will be in Asia and Latin over the next 10 years
• Classic cars have enjoyed the biggest uplift in value over last 10 years, measured against the other key collectable assets such as fine wine and art in Knight Frank’s luxury investment index.
As economic growth continues in China, all four tier-one cities are set to achieve new heights in worldwide city rankings, according to the seventh edition of Knight Frank’s Wealth Report.
The report features in-depth analysis of trends affecting economic growth and wealth creation around the world, including rankings of locations of importance to the world’s wealthy by assessments of four key measures: economic activity; political power; quality of life and knowledge & influence.
Liam Bailey, Head of Residential Research, said “according to our Global Cities Survey, London and New York remain the most important destinations for the world’s wealthy but in ten years’ time, there will be more Asian cities at the top of that list. By 2023, our survey of HNWIs will show Shanghai and Beijing joining the top 10 at the expense of Geneva and Paris.”
This year, Shanghai is ranked the fifth most important economic centre in the world, under New York and London (numbers 1 and 2, respectively) but above regional economic centres Hong Kong and Singapore (7 and 8, respectively). Beijing comes second as a centre of global political influence, one spot under Washington DC and, crucially, one above Brussels.
Following Shanghai’s and Beijing’s move up the ranks, many other top-tier cities led by Guangzhou and Shenzhen are also creating wealth very quickly and expect to see triple-digit increases in HNWI population and global importance. “Spurred in large part by growth from emerging economies around China, wealth creation in China has not slowed down in the wake of the financial crisis,” said Nicholas Holt, Knight Frank’s Research Director, Asia Pacific. “Chinese investors are making their impact felt around the world. While Western HNWIs are becoming more risk tolerant as the global financial slowdown continues, many wealthy Chinese are structuring their portfolios differently. We are seeing multiple different trends at work as they seek more conservative real estate investments on one side, but they also are making investments that allow them to enjoy their wealth too,” he commented.
Lawrence Wong, Alternate Chief Executive of Bank of China International Limited, the private banking arm of BOC International Holdings Limited, added “HNW clients in the region are looking for safe havens, having experienced the credit crunch in the European Union. Clients are rebalancing their holdings to shift more investment into China.”
Knight Frank’s luxury investment index has shown that collectable assets such as arts, fine wine, classic cars, coins and watches have accrued cumulative gains of 175% over 10 years (6% last year). Chinese HNWIs are leading this trend, reshaping the global markets for arts as well as antiques, jewellery and other luxury items.
Additionally, the report shows an evolution of the map of the world’s wealthy, with a new concentration of wealth in Asia. Globally, the number of billionaires will increase by 85% over the next 10 years, with the biggest increase being in Asia, 119%. The top country for billionaires is still the US with 543 and the number will grow by 103% by 2022, but that in China, at that time, will increase from 154 to 483, an increase of 214%.
China’s property among the most expensive worldwide
Prime residential property in China has the potential to provide huge gains to investors, as the 2013 Wealth Report released today by Knight Frank shows. Especially in cities like Shanghai and Guangzhou, prime property values demonstrate sustained growth far above that of other globalised centres of property investment.
Policies aimed at cooling the property markets in major cities have nevertheless led to a marked difference between growth rates in different cities. In Beijing, where policy controls have been the tightest, prices grew only 2.3% year on year, as compared to other tier-one cities such as Shanghai (10.8%) and Guangzhou (12.5%). Investors seeking speedy capital gains should consider Shanghai, Guangzhou and other major real estate markets in China, which grew significantly faster.
For example, prime residential units in Upper East Side, a centrally located prime location near Beijing’s CBD, has risen in value 3% from a year ago; prices of a similar property, Shanghai’s One Park Avenue in Jing’an, rose 10% in the same period. In fact, prime properties in Shanghai now rank among some of the most expensive in the world. This puts Shanghai squarely above key locations such as Tokyo and Los Angeles (14th and 15th places, respectively), however Monaco takes the top spot with Hong Kong in the second place.
According to the report, Knight Frank predicts further gains for prime property values in Shanghai and Guangzhou, as demand remains high. As these two markets are targets for investment from other areas in China, they are subject to the economies of other areas of the country, however they also benefit from increasing urbanisation and wealth creation in lower-tier cities. Even in uncertain economic times, residential prime real estate remains the largest share of investments for most Asian investors and global real estate investors.
The value of prime property in Chinese cities rises in tandem with a growth in the number of high net worth individuals investing in those cities. However, as the report notes, this group’s investment habits are notoriously risk-averse. Chinese buyers’ impact is being felt outside of Mainland China as well, pushing up real estate values in Southeast Asia, Australia and New Zealand.
Fueled in part by money coming in from China, prime real estate values in Jakarta rose 38% in 2012 compared to 20% in Bali and 12.7% in Auckland. Even Hong Kong, where legislation designed to limit foreign real estate investment came into effect last year, saw gains of 8.7% in the prime sector. Top markets worldwide such as London and New York continue as safe havens for investors from around the world, and analysts are seeing signs of resurgence in prime markets elsewhere as well following inflows of capital from emerging economies in Asia and the Middle East.
Hong Kong prime homes rank the second most expensive in the world
Thomas Lam, Director and Head of Research & Consultancy, Greater China at Knight Frank, believes that following the economic downturn, Miami, London and New York came to epitomise the so-called safe haven market, with overseas buyers looking to escape currency, economic, political and security crises by putting equity into tangible assets that appeared safe from government sequestration. This trend gathered pace in 2012. Thomas says, “Asia’s affluent are still keen on investing in real estate. 34% of the respondents of Asia private bankers and wealth advisors said their customers may purchase a new property in the next 12 months, while in Europe and the United States, the figure is only 17%. Compared with other countries, China’s affluent are more inclined to invest in real estate and preserve cash.”
“In Hong Kong, even though the government has imposed a series of tightening measures in the property market, luxury residential prices still experienced a 9% increase in 2012. The average luxury home price was HK$37,000 per sq ft, ranking the second highest in the world right after Monaco, with Shanghai and Beijing ranking the tenth and eleventh, according to our annual survey on the global luxury residential market.
The Hong Kong government has enforced new property measures at the end of February 2013, doubling the stamp duty rates for property purchases. Mr Lam said “we see government’s determination in curbing property market’s asset bubble as this is the first time the government imposed tightening measures on non-residential property. We believe the new round of tightening measures would dampen all types of property transaction volumes in the short term. The Hong Kong property market, particularly the commercial sector as well as speculative and confirmor activities, would cool down in the next few months. However, given unchanged in Hong Kong’s fundamentals, a wave of undersell is not likely. We expect residential property prices to experience mild upward or downward movements of less than 5% in 2013. We expect more tightening measures to come should property prices continue to increase. We will closely monitor the property market and government policy, and to adjust our forecast for the property market at appropriate time.”
Beijing commercial real estate values up as sought after by private investors
Private Chinese investors’ recent interest in commercial property mirrors a global trend, according to the 2013 Wealth Report. In order to diversify their portfolios, private investors worldwide are turning to commercial real estate, according to the report, with a total of USD 92 billion spent by private investors on commercial property in 2012 as compared to USD 47 billion in 2009.
Regulatory environments around the world are also a key factor pushing this trend. Following the Chinese government’s stricter controls on residential property in the wake of the rapid price acceleration in 2010-11, many Chinese investors have been exploring commercial property to continue to benefit from rising land values. Crucially, in Beijing, the market where restrictions on residential real estate purchases were most closely regulated, commercial real estate grew 23% in value in 2012, a full 20% more than Shanghai in the same period.
Knight Frank expects these cities to continue to improve in value in the near future, especially Beijing. Shanghai is expected to remain constant in its low growth as supply increases as a large number of mixed-use developments including retail space and office space are set to come online this year. Beijing however expects supply to remain relatively constant.
Knight Frank’s research also shows high potential for growth in lower-tier cities as many developments enter these markets. In the wake of infrastructure and economic pushes undertaken by local governments, many lower-tier cities are developing potentially lucrative commercial property markets with accelerations both in demand and supply, as mixed-use developments are expected to come onto the market in the near term.
Nick Cao, National Director and Head of Investment & Capital Transactions at Knight Frank China, said “Beijing’s growth in this sector has been phenomenal and we expect this to persist as long as restrictions on residential real estate continue. As for lower-tier cities, retail is a good option to consider as demand from local consumers is strong, while many cities’ comparative focus on manufacturing and the industrial sector suppresses the values of office and hotel spaces.”
International markets showed growth that, while sustained, was more conservative than that of Mainland China. Hong Kong’s retail market in particular has been very strong and is expected to push retail space values up by 10-15% in 2013, spurred in part by a near-constant influx of shoppers from the Mainland. Retail property prices in Kuala Lumpur are also predicted to grow by 6% for the same reason. Retail and office spaces in London and New York are particular bright spots for investors from around the world.