Despite a year of permacrisis – the feeling of living through a period of war, inflation and political instability – four in 10 ultra-high-net-worth individuals (UHNWIs) grew their wealth in 2022, according to a recent report.
The drivers of this performance are real estate, currency trades, market timing and, for the first time in more than a decade, the return on cash, notes Knight Frank’s Wealth Report on the Global Outlook for 2023, which surveyed more than 500 private bankers, wealth advisors, family offices and industry experts in November 2022.
The report also reveals that those that saw their wealth shrink, attributed it to equity markets, financial markets more broadly and interest rate moves.
However, with disruption comes opportunity, and the report found that more than two-thirds of those surveyed expect their clients’ wealth to increase marginally (47%) or significantly (21%) in 2023. Real estate (46%), tech (33%) and equity markets (28%) were cited as the top opportunities in 2023 for UHNWIs to grow their wealth.
Globally, 68% of UHNWIs expect to see wealth growth in 2023, with greater interest than before in opportunities within the real estate sector as they see the sector providing an inflation hedge and diversification benefits.
Rising mortgage rates and the high inflationary environment impact housing affordability, particularly the mid to lower end of the housing spectrum, finds Knight Frank’s Asia-Pacific Outlook 2023 Report. The prime segment where buyers are less sensitive to rate hikes and rising borrowing costs is still thriving, contributing to wealth preservation by high-net-worth individuals (HNWIs). Safe haven requirements, coupled with volatility in other asset classes, will support HNWIs’ demand for prime properties in gateway markets like the UK, US, Singapore, Monaco and Switzerland.
The UK, US and Singapore rank among the top 20 global destinations that Asian investors are interested in when it comes to purchasing a second home with overwhelming interest from investors from the Chinese mainland who own the most residential properties worldwide – 3.8 global properties on average.
Singapore is the only Asian city in the top 10 and one of only four cities whose forecast has climbed in the past six months (out of 25 global cities tracked). Singapore HNWIs are the most optimistic about the direction of the house prices in their city in the next 12 months, with 86% expecting an increase. Further fuelled by the recent weakness of the pound and strengthening of the US dollar with prime prices increasing by 7.1% in New York, the highest rate in eight years, resumption of travel and Singapore offering economic prospects and a steady inflow of inbound talent, these cities remain the markets to watch for Asian investors whose currencies are dollar-pegged.
Key markets leading the price reversal include New Zealand and Australian cities, given the strong price run-up during the pandemic. New Zealand has seen the biggest decline with prices down 3% on a three-month basis. New responsible lending laws and seven rate rises since October 2021 have shifted buyer sentiment, from a fear of missing out to a fear of overpaying. The rate of prices slowing down and normalizing offers a more sustainable backdrop for growth in most markets moving forward as large parts of the world move to a post-pandemic landscape, coupled with inflation, rising taxes and more property regulations.
Art is forecast to remain the most sought-after investment of passion in 2023 with 59% of UHNWIs indicating that they are likely to make a purchase, followed by watches (46% looking to purchase) and wine taking the third spot (39%).
“Asia-Pacific’s property market is better anchored to its economic fundamentals, which will also continually revive from reopening dynamics,” shares Victoria Garrett, head of residential at Knight Frank Asia-Pacific. “The region’s economic growth story will remain urban-centric, and its residential investment landscape will continue to be defined by its prime urban cores. Underpinned by its high rates of urbanization, investors can look forward to a more sustainable growth trajectory and wealth preservation profile."