"Japanese UHNWIs are major cross-border, outward investors"
The number of UHNWIs, those with wealth exceeding US$30 million, reached almost 200,000 in 2013. Their combined wealth of $27.8 trillion is forecast to exceed $40 trillion by 2020, according to Wealth X. The growth in the ultra-rich and their predilection for real estate investments is opportune. At a time when credit markets have been shrinking in the wake of the 2008 global financial crisis, UHNWIs have provided equity in real estate deals that may otherwise not have taken place.
Savills has analysed the real estate holdings of these individuals, and discovered that a small number of countries dominate global real estate investment. Three markets: Germany, Japan and the United States top the list as the global locations with the highest value direct real estate investment by UHNWIs. Together they account for 39% of all UHNWI global real estate holdings.
Germany is the biggest source of UHNWI investors in real estate globally, with holdings totalling some US$945 billion, 18% of the world total. With the most UHNWIs in Europe, the country tops both Switzerland and the UK, which are both often perceived as the major European centres of wealth. Germany outstrips Japan as the single biggest UHNWI real estate investing country, despite its smaller overall UHNWI population of 17,820 individuals. Germans are highly domestic in their real estate holdings – focus cities for German UHNWIs include Frankfurt, Munich and Hamburg, which correspond with the major wealth-generating industries of finance, engineering, manufacturing and the media.
Japan is the second biggest source of UHNWI real estate investment globally ($621bn, 12% of the world total), and is global in its reach. It is symptomatic of what happens when domestic markets stagnate, but the opportunity and financial cost of money is cheap. Overseas real estate has been an attractive asset class for the past 20 years while domestic markets have faltered, and as a consequence, Japanese UHNWIs are major cross-border, outward investors. That said, with Abenomics taking effect, Japan’s real estate markets are gaining momentum and recording price rises. We expect more focused investment to follow.
Japan is Asia’s top country for UHNWIs, and with 14,270 individuals it is no surprise that Japanese UHNWI direct real estate holdings are among the largest for any single country. The rest of Asia’s UHNWI real estate investment is dominated by the major powers of China ($379.7bn) and India ($310.3bn), which are both overwhelmingly domestic markets. Hong Kong ranks particularly high in terms of direct real estate investment per UHNWI, in part due to the exceptionally high capital values in the Special Administrative Region.
The US is home to the largest number of UHNWIs in the world, a total of 65,505 in 2013, but American UHNWIs have a lower propensity to invest in property so they do not hold the most real estate in the world by value. Averaging just $8.1 million of real estate per UHNWI, their holdings total $530.8 billion, second to the Japanese and Germans. This reflects less interest in real estate investment over other assets such as financial instruments and the relatively low average property values in the US. The majority of American UHNWIs hold their property in the US. Indeed few of them venture outside their own country to buy property. This partly reflects the incredible breadth of real estate on offer in the United States. It is possible to own a property in a top tier world city, an international ski resort, on a world-class golf course or prized beach, complemented with commercial assets and productive agricultural land – all in the same country.
By contrast, Canadian UHNWIs, although dwarfed by the US in their number, are far more significant real estate investors. With an average value of $20.6 million per UHNWI, together their holdings total $102.5bn, on a par with the French, Canadian UHNWIs are much more likely to own property outside Canada, particularly in the United States.
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Asian UHNWI numbers and wealth are forecast to grow faster than any other global region in the next five years. China, India and Hong Kong are poised to strengthen their positions in the top 10 real estate investing nations. Downside risks emerging from the Eurozone crisis may put pressure on German UHNWIs along with other major European UHNWI groups, but it would take a major shock to displace Germany from the top, particularly given the resilience of the German real estate market. It seems likely though that the "Rest of Europe", a collection of smaller European nations, may forfeit their collective position to ultra rich groups in the emerging nations.