PBI has drawn on WealthInsight’s research to analyse a specific industry which plays a major part in driving high net worth wealth creation. This month PBI looked at real estate in UK, Switzerland, the US, Brazil, and Turkey.
The real estate industry has been very inconsistent over the review period (2007-11) in many countries clearly affected by the global financial crisis, where the local residential property was hardly hit.
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In Europe, there has been the highest overall decline of interest in real estate but prime properties attractions poles like Paris and Monaco in France, London in the United Kingdom and Switzerland remained unaffected and had a solid performance.
Poor can be described the industry’s performance in the U.S.A. with major declines while things look positive in Asia with China and particularly Hong Kong as well as India and Indonesia showing a moderate growth.
The emerging markets despite the expectations performed relatively well. Brazil outperformed its BRIC partners in crime having a big increase in the development of the industry with Russia having minor declines and Turkey major following the depreciation of its currency.
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By GlobalDataKey Figures:
– 688,800 HNWIs or 4.1% of the global high net worth population are involved in the real estate sector.
– 8.1% of the British ultra high net worth individuals accumulated their wealth by real estate over the review period, an industry which accounts as the basic wealth source of core millionaires (22%) in United Kingdom. The market dropped by 14% in 2008 and then flattened out in 2009 and 2010 as the Bank of England slashed interest rates from 5.5% to 0.5%.However, prime residential property indices outperformed the general market, with the London prime market rising by 8% in GBP terms over the review period. This growth was driven largely by foreigners buying up prime and super-prime property in central and west London.
| Name | Wealth (US$ bn) | Sector | City of Residence |
|---|---|---|---|
| Duke Gerald Cavendish Grosvenor, Duke of Westminister | 11.00 | Real Estate | Omagh, Northern Ireland |
| Lord Charles Gerald John Cadogan, Earl of Cadogan | 4.20 | Real Estate | London |
| Mr. Ian Livingstone | 3.30 | Real Estate | London |
| Mr. Richard Livingstone | 3.00 | Real Estate | London |
| Mr. John Whittaker | 2.69 | Real Estate, Energy & Utilities, Hotels, Restaurants & Leisure | Isle of Man |
– Despite the ongoing European crisis, the Swiss real estate business was unharmed. The real estate industry which is the second largest asset class for high net worth individuals in Switzerland (22.3%) proved extremely resilient being the best performing asset class over the review period driven by a buoyant local residential property market. Notably, the home ownership in Switzerland it is the lowest in Europe with only 35% of the Swiss population owning a house cause of pro-tenant laws. Thus, it comes as no surprise that many core millionaires end up not buying a property. However, in total 75% of high net worth individuals do. Over the review period the prime residential market outperformed the general Swiss market while in the future, an increase is expected.
| Name | Wealth (US$ m) | Sector | City of Residence |
|---|---|---|---|
| Mr. Thierry Barbier-Mueller | 797 | Real Estate | Geneva |
| Ms. Ruth Heuberger-Mötteli | 478 | Real Estate | Winterthur (Zurich) |
| Mr. Erich Trösch | 478 | Real Estate | Vierwaldstättersee ( Lucerne) |
| Mr. Robert Heuberger | 478 | Real Estate | Winterthur (Zurich) |
– The US property market has declined consistently in every year since 2006 and it is difficult to predict a bottom point. Real estate is the third largest asset class for high net worth individuals in the US. Nevertheless, economy being severely impacted by local housing crisis in 2008 resulted in a loss of consumer’s confidence in the asset class, loss that could lead to big problems since real estate accounts for 50% of the US individual wealth. Overall, US residential property prices dropped by 14.5% over the four year review period from 2007 to 2011. Prime property indices outperformed the general US residential market with prices in New York City falling by only 2.4%. However, US commercial property market performed poorly. As a result, high net worth individuals in the US decreased their property holdings from 19.9% of total assets in 2007 to 17.4% in 2011.
| Name | Wealth (US$ bn) | Sector | City of Residence |
|---|---|---|---|
| Mr. Donald Leroy Bren | 15.24 | Real Estate | Newport Beach, California |
| Mr. Richard S Lefrak | 5.20 | Real Estate | New York City |
| Dr. Stephen M Ross | 4.44 | Real Estate | Hamtramck, Michigan |
| Mr. Theodore N. Lerner | 4.16 | Real Estate | Chevy Chase |
| Mr. John Albert Sobrato | 4.08 | Real Estate | Atherton |
– The wealth of high net worth individuals in Brazil was positively influenced by the very strong performance of the local property market. In 2011, real estate was the largest asset class for high net worth individuals in Brazil, accounting for 37.4% of the total assets which is significantly higher than the global average of 15-20%. The residential property market performed particularly well with house prices rising by 92%. The high growth was the result of Brazil’s fast-growing middle class along with the upcoming attraction poles events, World Cup in 2014 and Olympic Games in 2016. Prices in commercial property market rose by 64%.Nonetheless, foreign property indices performed poorly over the review period, dropping by 25%. Thus, the share of assets Brazil’s HNWIs allocate to foreign property decreased from 3.8% of total assets in 2007 to 3.1% in 2011. Despite the decrease, 56% of Brazilian HNWIs have second homes abroad, which is significantly higher than the global HNWI average of between 20-25%.
| Name | Wealth (US$ bn) | Sector | City of Residence |
|---|---|---|---|
| Mr. Elie Horn | 2.2 | Real Estate | Sau Paulo |
| Mr. José Isaac Peres | 1.5 | Real Estate | Sau Paulo |
– A decline by 43% in real estate was witnessed in Turkey mostly because of the 35% depreciation of the local currency. This drop is worse even than the 21% decline in the United States of America. Commercial property accepted the biggest punch with a 42% decline. However, foreign market in Turkey outperformed the sector’s other types of properties increasing by 20%. A push mostly assisted by the Asian and London markets. Turkey has one of the lowest mortgage-to-GDP ratios in the world, at 5.5% in 2012. There therefore remains a great deal of scope for price growth in the local residential market over the forecast period as the local mortgage market develops.
For more detailed reports on the countries featured above click here.
