People who are considered as ultra affluent individuals, called as Ultra High Net Worth Individuals (UHNWI), are people with investable assets at least US$30 million, after accounting for their shares in public and private companies, residential and passion-based investments such as art, planes and real estate (Wealth-X, UBS, Grzeskiewiecz & Kozlinski). Billionaires, as a more common terminology, are actually a special category of UHNW individuals, having net worth in excess of US$1 billion. With such augmented affordability of wealth, it would be very interesting to find out about how these individuals spend their wealth on residential properties and how do they set their preferences and behavior in deciding where to live.
In order to find the answers, Wealth-X together with Sotheby’s International Realty conducted a research on the world’s ultra high net worth (UHNW) population, and generated Global Luxury Residential Real Estate Report 2015. This inaugural report looks at trends in the UHNW population’s appetite for luxury residential real estate across the world, identifies specific attitudes, behaviors and locations that matter to this industry and this wealth segment (Sotheby’s International Realty).
Global Luxury Residential Real Estate Report 2015 states that “Real estate is an investment, an asset and a lifestyle. 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. Numerous UHNW individuals also have utilized real estate as an investment vehicle to increase their wealth, but these properties continue to have a primary purpose: first and foremost, they serve as residences.”
Wealth-X President David Friedman asserted, “Luxury residential property is a core component to the anatomy of the ultra affluent at the intersection of their lifestyle and investment.” As added by Philip White – president and CEO of Sotheby’s International Realty, “For most ultra high net worth consumers, a solid investment in real estate is one of the single best factors for building long-term wealth”.
According to the 2015 report, New York, London and Hong Kong are on top of the list for residential destination, subsequently followed by three U.S. cities—Los Angeles, San Francisco and Washington, D.C., then Singapore, Dallas and Mumbai, with Paris rounding out the top 10 (Wall Street Journal). The rankings are based on the total number of UHNW individuals who own a residence—either primary or secondary—in each location. According to Philip White, good security, transparent legal systems and access to high-quality educational institutions are among the primary factors driving UHNW individuals’ real-estate decision.
Residential real estate, while it is known as a long-term safe investment, is almost always purchased because of a specific connection between a UHNW individual and a particular place, whether for leisure or business purposes; while ownership of a secondary residence location are chosen in regions where they are building up their business activities, or due to where their children are going to study abroad. Some of the main cities where UHNW individuals buy residential real estate outside of their home cities are located close to elite universities, financial hubs or often both (Global Luxury Residential Real Estate Report, 2015).
Every cities with their own characteristics, attractiveness, and urban amenities will attract different buyers with different purposes and value preferences. According to their research findings, New York, London, Hong Kong, Singapore and Paris are the most important international hubs for UHNW residential real estate. Some cities like Los Angeles, San Francisco, Washington D.C. and Dallas show how significant industrial clusters can be in driving residential real estate trends. Whereas, locations with particular appeal in terms of lifestyle – like Aspen or Switzerland for skiing, Monaco for yachting or the Hamptons for the summer are significant hubs for the UHNW population. New York, London, and Singapore (see the above bubble diagram) are considered special, since they provide wider and diversified urban typologies. As highly urbanized megacities, they are more appealing and sophisticated to attract most of the buyers, as they can satisfy most of the buyer’s business, emotional, and practical needs in one stop package.
Below are other key findings from the inaugural report:
- The value of UHNW-owned residential real estate assets increased by 8% globally in 2014.
- On average, UHNW individuals own 2.7 owner-occupied residences.
- As of 2014, over 7% of the world’s UHNW population made their wealth through real estate, up from 5% in 2013.
- Ultra affluent women value real estate assets more than their male counterparts, holding 16% of the net worth in such assets, on average, compared to less than 10% for men.
- Luxury residential real estate is an asset class typically favored by UHNW individuals with inherited wealth: these individuals hold 17% of their net worth in such assets, compared to just under 9% for self-made UHNW individuals.
- UHNW individuals with net worth between US$30 million and US$50 million typically keep their primary residences for over 15 years and their secondary residences for over 10 years.
- Billionaires change one of their four properties, on average, once every three years.
- Secondary residences are typically 45% more valuable than primary residences; twice the square footage and have 10 acres of land.
- At 83%, Monaco has the highest density of foreign-owned UHNW residences.
- Over 6% of the world’s UHNW population have relocated their primary residence to a different country from which they were born – these individuals often keep a secondary residence in their home countries, and India is the leading country in this respect.