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Gaining ground

Asian cities are expected to increasingly dominate the global wealth landscape
Tuesday, April 4, 2017 - 05:50

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BRIGHT SPOTS: Singapore (above), Hong Kong and Shanghai. The City Wealth Index highlights the most important cities for the world’s wealthiest individuals.

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BRIGHT SPOTS: Singapore, Hong Kong (above) and Shanghai. The City Wealth Index highlights the most important cities for the world’s wealthiest individuals.

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BRIGHT SPOTS: Singapore, Hong Kong and Shanghai (above). The City Wealth Index highlights the most important cities for the world’s wealthiest individuals.

THE world undoubtedly stands at a crossroads. The two defining events of last year - the Brexit referendum and the US presidential election - have made the path forward look less certain, raising new questions around a whole range of political and economic issues. Yet, despite this uncertainty, wealth creation gathered momentum during 2016 according to data prepared for The Wealth Report by New World Wealth.

A modest rise in the global population of ultra-wealthy people was achieved during the year, reversing the previous year's decline. The number of individuals with US$30 million or more in net assets, defined as ultra high net worth individuals (UHNWIs), rose by 6,340, boosting the total ultra-wealthy population to 193,490. Some 60 people saw their wealth move past the US$1 billion mark, taking the total number of billionaires to 2,024, an increase of 45 per cent in the past decade.

Breaking these numbers down, whether looking at growth over the last year, or forecasts over the next 10 years - it is in Asia where the trends are the most striking.

At a regional level, Asia's UHNWI population is forecast to grow by 91 per cent over the next 10 years to reach 88,180 - overtaking Europe as the region with the second-largest ultra-wealthy population. North America will still be the key hub for UHNWIs in 2026, with a population of 95,860, although Asia will start to vie for this title. At present, Asia has 27,020 fewer UHNWIs than North America; by 2026, this difference will have shrunk to just 7,680.

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The dramatic growth of UHNWIs in Asia is set to be reinforced by stellar growth rates in several countries, including Vietnam, which is expected to see its ultrawealthy population rise by 170 per cent to 540 over the next decade - the highest rate of growth in the world. Millionaire numbers in Vietnam are expected to jump from 14,300 to 38,600 over the same period.

Substantial growth is also forecast in Sri Lanka and India. Continued regulatory reform in India will help bolster its already positive economic performance.

In China, despite indications that economic growth is slowing, the sheer scale of the economy, coupled with strong growth in the local high-tech, media, entertainment and healthcare sectors, will deliver 140 per cent growth in ultra-wealthy populations.

Asia's two key financial hubs, Hong Kong and Singapore, are both forecast to see a more modest 40 per cent growth in UHNWIs over the next decade - although their populations will still be significant with 5,712 and 3,500 UHNWIs respectively in 2026 - the fifth and eighth highest city level concentrations globally.

Top global cities

The City Wealth Index, introduced for the first time in this year's report, highlights the most important cities for the world's wealthiest individuals. How does one identify the world's leading wealth centres? The obvious response is to look at where the wealthy live. On that basis, the answer is New York, with its 6,570 UHNWI residents easily outranking London's still respectable 4,750.

However, this only gives us part of the picture. The world's wealthy are a footloose group, and the place they call home is only a starting point when trying to unravel the locations that most resonate with them. The City Wealth Index uses four critical measures to identify the cities that matter to the wealthy.

  • Current wealth: the current population of UHNWIs
  • Investment: the total amount, in US dollar, of private investment in property during 2016, weighted in favour of those markets with a high proportion of cross-border inbound investment
  • Connectivity: the number of inbound and outbound first and business class flights in 2016
  • Future wealth: a forecast of each city's UHNWI population in 2026, weighted in accordance with the findings of our Attitudes Survey

Using this methodology, London emerges just ahead of New York overall with top scores for both investment and connectivity, while New York leads on both current and future wealth.

However, from a European perspective, there is little to celebrate: London is the only European city in our top 10 and, with the exception of Moscow and London, all European cities score lower for future than for current wealth. Future wealth concentrations and investment firepower look set to be dominated by a tussle for supremacy between Asian and North American cities.

The third and fourth largest concentrations of wealth today, Hong Kong and San Francisco, are likely to be eclipsed by the rising fortunes of Singapore, Shanghai and Beijing, which are all expected to see their wealthy populations grow rapidly over the next decade.

Chinese Tier-1 city residential markets

How is the interaction between wealth concentrations and city attractiveness playing out in the prime residential markets? The Wealth Report's Prime International Residential Index (PIRI) tracks the annual price changes across 100 locations, of which 19 cities are from the Asia-Pacific.

Globally, the value of the world's leading prime residential property markets rose on average by 1.4 per cent in 2016 - down from the 1.8 per cent overall growth seen in the previous year. However, the PIRI 100 also reveals a huge gap of 49 percentage points between the top and bottom ranking, up from 45 in 2015. The top of the ranking is dominated by cities in China - whose Tier-1 cities all saw over 26 per cent annual price growth. Other strong performing markets include cities in New Zealand, Canada and Australia.

On a more modest note, Singapore saw price growth of 3.4 per cent in 2016 as the prime residential market experienced limited activity. The relatively attractive pricing in comparison with other global cities and the relaxation of certain cooling measures - an easing of seller's stamp duty and a slight relaxing of the totaldebt- servicing-ratio framework - however, bodes well for stronger performance in this market segment in 2017.

Relative value

While the PIRI 100 helps us to gauge where a location is in terms of its property market cycle, the PIRI pagoda gives a picture of the value offered by key global residential markets in relation to one another. Some 20 prime city markets were selected and the number of square metres (sq m) US$1 million would buy in each of these cities were calculated, based on the typical luxury residential value for each city and the exchange rate at the end of 2016. The top four, Monaco, Hong Kong, New York and London, jostle for position each year. These latest results also highlight the relative value of key European cities such as Paris (55) and Berlin (87), where for US$1 million you can buy significantly more than in New York or London. Despite both cities recording strong price growth, there is a 51 sq m differential between the two top Australian cities, Sydney (59) and Melbourne (110).

Compared with Singapore's 43 sq m, US$1 million buys a palatial-sounding 209 sq m in Cape Town, although this is 18 per cent smaller than the 255 sq m the same sum bought in 2015. This shrinking floor space is attributable to both currency (the rand strengthened against the US dollar in 2016) and rising prices on South Africa's Atlantic seaboard.

Prime residential hotspots

So, which residential areas or sub-markets does Knight Frank believe could outperform both domestically and internationally in 2017? This year's report examined opportunities according to four different categories: infrastructure & transport; gentrification & the ripple effect; technology & creative industries; and value hunters.

Among others, sub-markets such as Mediaspree in Berlin, Hancock Park in Los Angeles, Mayfair in London and Randwick in Sydney have all been tipped to see strong price performance over the coming years.

To download The Wealth Report 2017 in full, please visit http://www.knightfrank.com/wealthreport

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