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Rare deflation for the high life in 2014: report

The Julius Baer Lifestyle Index of high net worth individuals fell 5 per cent - the first recorded fall since 2011.
Wednesday, October 15, 2014 - 05:50
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The latest edition of the Julius Baer Lifestyle Index, which captures the relative cost of a basket of goods and services reflecting the lives of high net worth individuals, showed a drop for the first time in US dollar terms, since the index was launched in 2011 - PHOTO: SPH

THE cost of a wealthy lifestyle just became more affordable.

The latest edition of the Julius Baer Lifestyle Index, which captures the relative cost of a basket of goods and services reflecting the lives of high net worth individuals, showed a drop for the first time in US dollar terms, since the index was launched in 2011.

The 2014 index, which covered 11 cities, dropped 5.3 per cent in US dollar terms. In local currency terms, it was flat, rising by just 1.1 per cent.

In previous years, the Lifestyle Index rose faster than standard consumer price indexes. This year average standard inflation rose by 4.5 per cent.

"... 2014 is a transition year, whereby the integration of Asia's economies, with China as the focal point, caused some temporary dislocations. This is evidenced in lower demand and therefore lower prices for some luxury goods and services. For the Julius Baer Lifestyle Index, we see 2014 as being an outlier year,'' said the bank. The index is part of the Julius Baer-Bank of China Wealth Report 2014.

The report notes that price rises of various items were also reflected in Tokyo. "This is especially noteworthy given the backdrop of 'Abenomics', whose signature policy is (to enable) Japan to move from a deflationary mindset to an inflationary one.''

Lower prices of luxury homes are a big factor in the index's drop as property has a 30 per cent weighting in the index. In US dollar terms, luxury residential property fell in Mumbai (-11 per cent) and Hong Kong (-14 per cent). Prices were broadly stable in Singapore (-1 per cent) and Shanghai (0 per cent).

Thomas Meier, Julius Baer regional head (Asia Pacific), says: "There is an in-built higher inflation premium for the wealthy because they have a different basket of goods and services... You can say that the life of the rich has become more affordable as measured in US dollar terms.''

Yet there are items that appear impervious to any downward pressure in prices. Education costs - captured in terms of boarding school and university costs - defy gravity. In almost all markets, they've risen in fairly high double-digit terms. The disparity in costs in US dollar terms reflects the local currency translation differences. University costs reflect degree programmes in Oxford and Harvard universities. In US terms, for instance, costs as quoted in Tokyo rose 44 per cent, compared to a 22 per cent rise in Hong Kong.

Declines in US terms

For boarding school costs, the rise ranged from 7 per cent in Shanghai to 28 per cent in Tokyo.

Still, many other items in the index reflected declines in US terms. In business class flights, for instance, the declines ranged between 4 and 51 per cent. The largest drops were reflected in flights originating from Jakarta (-51 per cent) and Tokyo (-44 per cent). The index captures full fare business class travel to London and New York for five airlines. The cost of a round-trip ticket originating from Tokyo was the most reasonable at US$3,932, about 40 per cent less than the US$6,521 fare charged for those who fly out of Singapore.

For wedding banquets, the most expensive city was Tokyo, where it would cost US$130,956 to host a banquet for 250 people at a top hotel. The comparative cost in Singapore was US$78,633, 10 per cent higher than the previous year. The report notes that the costs of wedding banquets have been rising since 2011, when the index started. "For now the large luxury hotels in Asia can command higher prices in most cities as marrying couples seek to create a splash on their special day.''

For a number of other items, globetrotting wealthy individuals can purchase luxury items at markedly lower prices in a numberof cities. In watches, for instance, the Oyster Rolex (yellow gold, Day Date II, 41 mm face) carries an average price of US$35,431 across 11 cities. Its prices are the lowest in Tokyo at US$30,309. It's priced near the average in Singapore at US$35,976.

The proxy for fine wine is 2000 Lafite Rothschild. It costs as much as US$4,285 in Shanghai. But in Tokyo, it costs US$1,832. Its price has fallen in almost all the cities.

For Louboutin pumps, the most costly is in Shanghai at US$953; the lowest price in Taipei at US$453. Singapore's price at US$712 reflected a drop of about 3 per cent in US dollar terms.

For a Botox procedure, the lowest price is in Manila at US$172; the most costly in Shanghai at US$1,373. Singapore's price was at the lower end at US$342.

Meanwhile, the wealth report also featured a survey of wealthy parents' attitudes towards children's education. The survey polled 800 parents in Beijing, Shanghai, Mumbai, Hong Kong and Singapore.

Singapore parents stood out for the strongest preference for local universities (64 per cent). Among China and India parents, the strong preference is for overseas universities.

The study also touched on wealth transfer. Respondents were asked which asset they would like to transfer most to the next generation - skills, knowledge, personal values or money. The lowest-rated asset was money and this pattern held across geographies. The most important asset was personal values; it was a prominent first choice in China, Hong Kong and Singapore.

"Not only do parents see passing their personal values onto their heirs and children as the most important, overwhelmingly they rate it as the most difficult asset to transfer,'' said the report.

gen@sph.com.sg

@GencuaBT