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REAL ESTATE

Robust outlook for Asia's wealthy

Property in the US and UK is a hot investment favourite

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LIVING THE HIGH LIFE: A view of Mount Nicholson project in Hong Kong. Tokyo and Hong Kong, among the Asian hubs that made the top grouping, underlined their status as cities attracting attention from the world's wealthy.

THE International Monetary Fund (IMF) recently upgraded its forecast for growth in 2018, predicting an expansion of 3.7 per cent, which if correct, would be the highest rate of growth since 2011. For many Asian investors, this was off the back of a brightening 2017, as strong equity and property markets boasted wealth portfolios.

Longer term, though, the picture is less clear, with the IMF and other commentators predicting headwinds for global economic growth in the not-too-distant future, including the impact of rising interest rates and increasing tensions around trade.

So what does a potentially time-limited economic upswing mean for ultra-wealthy populations around the world? New data prepared exclusively for The Wealth Report by wealth data specialist Wealth-X shows that the number of ultra-wealthy people (those with net assets of US$50 million or more) rose by 10 per cent in 2017. This took the global population to 129,730, with a total worth of US$26.4 trillion.

Asia sets the pace

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A 15 per cent rise in Asia's ultra-wealthy cadre took its population to 35,880 as at the end of 2017. Europe failed to fend off this strong challenge, narrowly losing its second-place regional spot despite a 10 per cent rise in the number of those with US$50 million to 35,180.

In China, the ultra-wealthy population will more than double in the next five years, swelling to 17,980. There will also be strong growth in Japan (+51 per cent), India (+71 per cent), Indonesia (+66 per cent) and Malaysia (+65 per cent). Overall, the outlook for the Asia region continues to be optimistic as growing consumer markets and rising commodity prices support exporting countries in the region, with expectations of gradual interest rate rises underpinning growth.

While Hong Kong and Singapore are not forecast to see absolute growth in wealthy individuals on the scale that we will see in Asia's three largest economies: China, Japan and India – when looking at wealth concentrations, they still lead the way.

Analysing the number of ultra-wealthy individuals per 100,000 population, Hong Kong with 70 and Singapore with 25 are placed second and fourth globally respectively; Monaco helms the top position at 129 per 100,000 with Switzerland in third position at 44.

Singapore Asia's top city

It is on a city level that much of the analysis takes place, and this year, we have built on our City Wealth Index, which was introduced in last year's Wealth Report, extending our analysis to provide the most rounded picture of the cities that matter to the world's wealthy. Our assessment covers a broad canvas, including where the wealthy live, spend and invest, where they enjoy their downtime and where they educate their children.

The index is built around four themes, each covering a range of critical measures, namely "Wealth", "Investment", "Lifestyle" and "Future".

Asian cities took three of the top 10 spots in the City Wealth Index, with Singapore's stand-out ranking a reflection of its strong performance across all criteria, with an especially impressive showing in lifestyle – considered increasingly important by the world's international community. Tokyo and Hong Kong, the other Asian hubs that made the top grouping, underlined their status as cities attracting attention from the world's wealthy, with notable attention continuing to come from Chinese mainland investors.

Price performance of luxury residential property

With prime prices up by over 27 per cent, the Chinese city of Guangzhou leads the rankings in Knight Frank's Prime International Residential Index (PIRI), which tracks the value of luxury homes in 100 key locations worldwide, including 20 destinations from Asia-Pacific.

However, unlike in 2016 when Guangzhou was joined by Beijing and Shanghai in occupying PIRI's top three positions, in 2017, it was China's only entry in the top ten. Tighter macro-prudential regulations introduced by the government have achieved their goal of deterring speculative activity and curbing price inflation across large parts of China. The weakening in Beijing and Shanghai contributed to a slight drop across the Asia-Pacific region as a whole, with markets averaging 4.4 per cent growth in 2017, down from 5.2 per cent the previous year. Seoul (13.2 per cent) and Hong Kong (7.3 per cent) continue to perform strongly, despite stringent cooling measures.

Both markets face limited supply and, in Hong Kong's case, significant investment flows from the Chinese mainland. After reaching its peak in the fourth quarter of 2013, a string of government cooling measures drove down private residential home prices in Singapore, but 2017 marked a turning point with prices ending the year almost 6 per cent higher. A brighter economic outlook, rising household wealth and limited supply are supporting price growth.

US and UK still hot destinations for Asian homebuyers: The Attitudes Survey

As per every year, the results of The Wealth Report Attitudes Survey provide insights into the interaction of private wealth and various investment classes. The 2018 survey is based on responses from over 500 of the world's leading private bankers and wealth advisers who represent around 50,000 wealthy individuals with a combined wealth of more than US$3 trillion.

In terms of attitudes to property, appetite remained high with 43 per cent of Asian having increased exposure to property in 2017. Looking forward into 2018, overseas markets continued to attract attention, with 23 per cent of Asian clients planning to buy an additional home outside their home country over the next 12 months. In terms of the most favoured markets, the US and UK, perhaps unsurprisingly, remain key destinations for most Asian buyers.

The next hotspots

With these results in mind, Knight Frank's residential research teams have identified the hotspots of the future where local price performance is likely to outperform the wider market. In The Wealth Report, we have pinpointed the neighbourhoods that we think will outperform over the next five years. For some, transport improvements play a significant role; for others, new industries or an area's comparative value explains their selection.

For those looking stateside, whether it is the financial district, on the southern tip of Manhattan Island, New York; in the upscale district of Red Mountain in Aspen; or Brentwood, the leafy suburb in Los Angeles westside – the US picks are certainly of interest. In the UK, Bayswater's potential as a prime address in London is highlighted, following the announcement of plans for a major redevelopment.

Here in Asia, Paya Lebar Central in Singapore is an area seeing a new wave of gentrification, thanks to its rich cultural heritage, with take-up from recently launched projects proving very positive; while the redevelopment of Kwun Tong, a former manufacturing district in the east of the Kowloon Peninsula, Hong Kong – is already starting to have an impact on pricing.

With rising interest rates and potential cooling measures in 2018, the ability to spot the next neighbourhoods, whether looking at home or abroad, will be vital. The in-depth analysis in The Wealth Report can assist investors in their global strategies over the short to medium term. W