It is estimated by Wealth-X, a firm that tracks the wealth of the most affluent, that there are just under 190,000 ultra-high-net-worth individuals (UHNWIs) in the world, enough people to fill the 2012 London Olympic Stadium 2.3 times. Each has net assets of more than $30m and their combined total wealth stands at almost $26 trillion, which would buy all the real estate in the UK more than three times over.

Since 2008, private money has sought “safe havens” in the form of real assets for the preservation of wealth. One such safe haven has been prime real estate in key global cities.

In this report, we look at the prime housing markets of the four cities at the forefront of global private wealth flows. Two are from the “new world” — Hong Kong and Singapore — and two from the “old world” — London and New York. These are cities that, together, witnessed more than 300 residential real estate transactions in 2012 where the price was over £10 million. Together, the value of those transactions exceeded £6.6 billion. In London alone, £2.3 billion of £10 million plus transactions took place in 2012, a figure 18% higher than five years ago — despite the impact of the intervening credit crunch.

Where in the world

North America is home to over one third of the UHNWI population and New York has the highest share of this figure, accounting for around one in eight UNHWIs in the US. Residential property here currently looks good value compared to other world cities as it suffered from the price falls experienced throughout the US – despite the fact that occupier demand, evidenced by rental growth, has been strong since 2009. The global purchaser interest now pointing at New York is providing opportunities for an expansion of its ultra-prime condominium market.

In terms of transactions worth over £10 million, London is a bigger market than New York and has broader international appeal, with buyers arriving from every corner of the globe. This is reflected in the fact that 32% of its UHNWI population is not UK domiciled. Here, new build property plays a critical role in both meeting and defining the property demands of a growing pool of global UHNWIs. Developments such as One Hyde Park: The Residences at Mandarin Oriental, London set new standards not only in terms of design, finish and facilities but also, with its link to the Mandarin Oriental, the service offered to owners.

As a generator and store of wealth, Asia is rising fast. Over the next five years its UHNWI population is expected to grow by 50% more than North America and the wealth of that population is expected to overtake that of Europe. All eyes may be on China, but as things currently stand the markets of Hong Kong and Singapore combined have an UHNWI population more than twice that of Beijing.

The cost of ownership

The rapid rise in wealth generation in the region means that five year price growth in the prime residential markets of Hong Kong and Singapore has dwarfed that of the two “old world” cities. The price of the very best property has increased by over 150% in each. Such rapid price growth has caused their governments to raise transactional taxes as a means to cool the markets.

Indeed, taxation is a hot issue amongst all of these cities. New York has a long-established annual property tax, equating to around 2% of property value, and London has raised its levels of stamp duty and clamped down on offshore corporate ownership. In addition, a continued debate in the UK over the merits of a “mansion tax” brings an element of caution to the market, at least in the short term.

Driving growth

The fundamentals of demand for ultra-prime properties in all four cities still looks strong. Globally, the UHNWI population is expected to grow in the next five years by around 20% and their wealth by 30%. The search for safe stores of wealth will continue and may be accompanied by an increasingly energetic search for income too. Prime real estate in these global cities performs on both counts.

We believe these four cities will see their ultra-prime housing markets grow in the next five years. This growth will be both organic, as the areas considered prime and ultra-prime expand, and also incremental as new, ultra-prime stock is built to expand the currently very low numbers of new product. The 300 sales seen in 2012 are expected to grow to 400 a year by 2017 and their total value is expected to grow from £6.6 billion to £8.4 billion.

Taken from
Candy Global Prime Sector Report