Real estate consultancy Knight Frank’s Wealth Report released early this week, takes into account the distribution and expansion of wealth across the world, the growth of Ultra High Net Worth Individuals (UHNWIs: whose net worth at least US$30 million), and the global luxury real estate market performance to compile a holistic report on the rich.
Rich in billionaires
Asia continued to lead the billionaire race, contributing 36% of the total billionaires in the world in 2021. However, the world over saw an increase in the super-rich, except Africa, where a 0.8% decline was noted. UHNWIs credited opportunities in technological and digital adoption, equity market, ESG (Environmental, Social and Governance), private equity, as creators of wealth.
India witnessed strong growth in the UHNWI population, recording an 11% increase, the highest in the Asia-Pacific region. Ranking third in number of billionaires worldwide, following US and China, India counted 145 billionaires amongst its population. Third and fourth place were occupied by Germany and Russia. According to the Knight Frank report, within India, Bengaluru, Delhi and Mumbai led the way, with 17.1%, 12.4% and 9% growth of UHNWIs in 2021. Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “The growth in younger, self-made UHNWIs has been incredible in India, and we foresee them driving new investment themes and innovation.”
According to the wealth report 2022, India’s UHNWIs allocated 11% of their wealth to passion investments, compared to the global average of 16% in 2021. Art raced to first place, a fact evident by record-breaking prices for artists like Gaitonde, whose painting sold at auction for Rs. 42 crore, just last month (February 2022). Knight Frank’s wealth report included a luxury investment index (global) where art was reported to provide a return of 13% in a 12-month period and 75% over 10 years. Jewellery and classic cars followed passion-led investments indices, in places two and three, while luxury handbags and wines slipped from their #1 position to fifth and seventh respectively in 2021.
However, unlike past years when rare whisky topped the charts for investments, wine became popular in 2021, gaining 16% growth in value vs rare whisky’s 9%. In terms of 10-year increase in value, though, whisky led the way, at more than 3 times growth than that of wine. In line with global trends, Indian UHNWIs too confirmed a higher preference for wine, compared to rare whisky in 2021.
Real estate rush
Residential property experienced an influx of interest, as 29% of the wealth of Indian UHNWIs was allocated towards purchase of residential properties. Energy sources such as solar, fossil fuel, heat source pump were identified as key factors considered while purchasing a home in India. Also, ESG (Environmental, Social and Governance)- focused property for investments were popular and will continue to gain prominence as key influencer in property purchase decisions in 2022.
The first preference of Indian UHNWIs was properties in the domestic market, followed by international markets in UK, UAE and US. Real estate investments were considered safe and tangible options in the wake of the pandemic’s uncertainty. Baijal said, “Interestingly investors showed preference towards assets such as Land Development, Healthcare, Retail and Logistics.” Liam Bailey, Global Head of Research at Knight Frank commented on high demand for rural and coastal properties, with access to open space being of utmost importance. The pandemic was the cause for this focus on wellness features, and locations by the mountains, lakes, and coast rose to popularity. Rising wages, savings in the lockdowns, strong-performing equity markets, bonuses and upgradation of residences and lifestyles also contributed towards growing investment in real estate.
Dubai tops PIRI 100
Prime International Residential Index (PIRI 100) keeps track of which cities dominate the global residential market. 2021’s list has Dubai in the top spot, with 44.4% growth, while Moscow and San Diego occupied places second and third. Kate Everett-Allen, Head of International Residential Research at Knight Frank, credited Dubai’s success to the UAE’s handling of the pandemic, strong vaccination drives, delivery of high-end projects as well as innovative new visa initiatives and economic reforms. Their luxury market in particular was strong, as sales above US$10m accounted for 7% of all transactions, compared to past figures of 2%.
The Prime International Residential Index (PIRI 100) recorded its highest annual growth since 2008, rising by 8.4% YoY in 2021, up from 2% in 2020. The Chairman and MD, Knight Frank India was confident about the real estate market, commenting that it is “on the cusp of a cyclical upturn.” 35% of 100 luxury residential markets tracked by Knight Frank saw prices increase by greater than 10%, underscoring the strength of the sellers’ market. Only seven locations saw prices decline in 2021.
What can US$1 million buy
While US$1 million may seem like a lot of money, when it comes to the real estate market, that much money can buy around 2% more residential space in Mumbai, Delhi and Bengaluru. Monaco continued its reign as the world’s most expensive city where US$ 1 million can get you 14.6 square metres of space, followed by Hong Kong with 21.3 sq. mt. and London 30.6 sq. mt. In comparison, Mumbaikars can purchase 108.1 sq. mt. of prime residential real estate, a figure that is higher than 2020, which means the city has gotten more affordable by 2% in the last two years. In Delhi, a purchase of 206.1 sq. mt. is possible with US$ 1 million, while 357.3 sq. mt. can be bought in Bengaluru. The prime property markets in Bengaluru and Mumbai recorded only marginal price increase of 0.3% each, while Delhi’s prices remained unchanged.
Looking to the future
The real estate investment market is set to remain stable according to the Wealth Report. Globally, 21% of UHNWIs and 10% of those in India plan to purchase a new home in 2022. Prime residential prices are expected to grow further by 10%-12% during 2022 all over the world, including in Asian cities. Over the next five years, Knight Frank forecasted that the global UHNWIs population will grow by a further 28%, with India expected to grow by 39% between 2021- 2026. 19,006 people will have net assets of US$30 million or more by 2026.Also, within the next 5 years, Bengaluru is set to see an 89% increase in the UHNWI population. About 69% of Indian UHNWIs expect their wealth to increase more than 10% in 2022. In a survey, results indicate that UHNWIs fear three main threats to wealth creation, climate change, armed conflict, and new COVID variations.