When it comes to our current pre-war, pre-revolutionary world (in Paul Tudor Jones' words) there are two social classes which are jockeying for the post positioning when it all comes crashing down: the Ultra High Net Worth, i.e., the 0.01%, those 211,275 individuals (and their families) who have a net worth over $30 million and who collectively control $30 trillion in wealth, and everyone else, with the countdown to extinction for the global middle class now getting louder by the day, leaving a world of a handful of uber-wealthy oligarchs and billions of, well, others.
And nowhere is this distinction more vivid than when looking at their residential real estate holdings. But while the real estate of the 99.99% is boring (and increasingly in the form of rentals), when it comes to the dwellings of the 0.01% things get exciting, and are the topic of the latest joint report between Wealth-X and Sotheby's, which while not revealing anything groundbreaking has plenty of pretty charts.
... and "fast facts" such as the following key findings (see if you can spot in the data below how, as we first hinted in 2012, the US and NYC specifically, became the new "Swiss bank account"):
- The world’s ultra high net worth (UHNW, or those with net worth of $30 million or more) population totals 211,275 (up 6% from last year), control $29.7 trillion in wealth (up 7% from 2013) and these individuals each own, on average, 2.7 properties.
- US$2.9 trillion of the world’s UHNW wealth is held in owner-occupied residential real estate assets.
- 79% of the world’s UHNW individuals own two or more properties and just over half of them own three or more residences.
- Secondary residences are 45% more valuable & twice as large
- UHNW individuals are increasing the number of properties they hold outside their home countries with the United States, United Kingdom and Switzerland being the three favorite locations.
- Over 7% of the world’s UHNW population have made their wealth through the real estate industry, up from 5% in 2013.
- The UHNW Residential Real Estate Index shows a 8% increase in the value of UHNW-owned residences globally in the past year.
- The United States is the most popular country for foreign UHNW individuals looking to buy secondary residences.
- New York is the city with the highest number of UHNW-owned residences in the world.
- Monaco has the highest density of foreign-owned UHNW residences - 83%.
- Female UHNW individuals value real estate assets more than their male counterparts, holding 16% of their net worth in such assets compared to less than 10% for men.
- UHNW Chinese and Russian multiple homeowners are typically self-made and young – these two clusters are becoming increasingly important buyers of luxury residential real estate around the world.
- Over 6% of the world’s UHNW population is made up of expatriates - those individuals who are currently based outside their home countries. These individuals are stimulating residential real estate demand in their home countries’ markets
- for example, India’s non-resident population is increasing demand in Mumbai’s residential real estate market.
These are the world's "billionaire hubs":
One thing about billionaires: they don't want to be confined to just one residence. Or two. Or three. "These individuals typically not only own a residence in their primary business city, but also own secondary residences outside this home city and often outside their home country. The UHNW population forms the consumer base for the global luxury residential real estate market. There are varying definitions of “luxury residential real estate" and some differ by location - for example, city penthouses and countryside mansions."
What are the UHNW's preferred locations? Well, everywhere, but they have a certainly predisposition to select venues:
We continue to see New York, London, Hong Kong and other such markets dominate the luxury residential property landscape, although other more niche markets such as Monaco, Lugano and even Marbella are also attractive to UHNW investors. New markets are becoming increasingly important in generating investment from new UHNW individuals and therefore new demand for luxury residential real estate - whether for these new UHNW individuals, or for foreign-based UHNW individuals who want to enter these markets. Middle Eastern cities such as Abu Dhabi and Dubai continue to see soaring housing prices with high demand – spurred by the governments’ focus on tourism and real estate as sources of investment.
All around the world – from St. Bart’s to Marbella, Mexico City to Mumbai - UHNW individuals own real estate, with clusters of various sizes forming in various locations. What this report also shows, however, is that some of the world’s most significant hubs for luxury residential real estate are tied to the identity of a particular city - from the appeal of the Hamptons for New Yorkers in the finance industry to the attraction of Los Angeles for individuals involved in the entertainment industry. Despite this phenomenon, one pervasive trend remains true – UHNW individuals’ interest in luxury residential real estate is not bound to any one location. Many in the UHNW population acquire properties in areas that have sentimental value and that can offer privacy. This is why, aside from their primary residences typically located in global hubs, UHNW individuals’ secondary residences in the countryside are often particularly luxurious.
What is curious is that while the primary UHNW residence tends to be tied to their area of business interest, it is the secondary house that is a far greater store of value:
Below are the prevailing primary residence countries of choice:
How much of the UHNW's net worth is in real estate? It depennds on their total wealth, with 22% allocated to housing for the lowliest rung, those with "only" $30-0$49 million, at 22%, going all the way down to a mere 3% for the wealthiest, those with over $1 billion in wealth.
Of course, no look at the ultra-wealthy home buyers would be complete without your stereotypical breakdown of the two biggest purchasing groups in recent years: the Russians and the Chinese. Sure enough:
One thing is certain: the housing market for the less than ultra-luxury segment may be stagnating, but when it comes to the offshore tax shelters known as "luxury real estate" (especially in the US), it is truly a bull market, one which is rising far faster than the overall market.
Wealth-X's conclusion is effervescently optimistic:
The future of luxury residential real estate looks highly promising and positive. With its tendency to gain in value faster than traditional real estate and its greater appeal to UHNW individuals with inherited wealth as well as its reputation as a safe asset, luxury residential real estate is set to see more and more growth in demand. We also expect that as new UHNW individuals become involved in the real estate industry, a new boom of supply of such real estate will occur - in locations that have so far been less important than the traditional hubs explored in this report.
Well, coming from Sotheby's one wouldn't expect a view of the world in which the rich don't get richer, and fail to generate the much needed sales commissions. And, it is a view that is surely accurate, at least until either the revolution or war predicted by PTJ, becomes a fact. By then, however, the world will have far bigger problems than what the price of a luxury palace in St Barts is.
Finally, since the Wealth-X report is ultimately a sales brochure, here is a sample catalog of what those 211,275 individuals for whom this post is relevant, are bidding on.