Citi Private Bank (part of Citigroup) and Knight Frank have published their 2007 Annual Wealth Report on where the wealthy are likely to buy first or second homes (download the pdf report here). The research was done in January and February and the sample was chiefly UK residents. The reportâ€™s second component is the Prime International Residential Index, comprising a basket of properties located in more than 70 prime market locations worldwide and valued over time to provide an accurate guide to average prices and price movements.
Maybe not surprisingly, the report reflects confidence that the worldâ€™s high net worth individuals (HNWIs) are going to continue to prosper as a class and that theyâ€™ll be at the cutting edge in patterns of real estate investment, market leaders as well as fashion leaders.
The reports main finding is that wealthy people are investing an increasingly high proportion of that wealth in property. From a UK perspective one would think that this commitment to real estate is not really a matter of choice but more one of â€˜running to keep upâ€™ as the country draws in more wealthy foreigners with one-time UK residents buying abroad if they canâ€™t keep up. The report sums this up with the telling line; â€œIt really has never been so expensive to be wealthy.â€
The report gives some analysis of the success of the wealthy in the UK and North America in increasing their share of their nationsâ€™ wealth and explains Citi Investment Researchâ€™s notion of a plutonomy, a society that becomes more stratified in this way. For more about the thinking behind plutonomy read commentary from Bill Cara’s blog. The authors predict that the concentration of wealth will increase and donâ€™t seem to have any concerns that the marketâ€™s over dependence on the discretionary spending habits of the wealthy makes it particularly vunerable to a correction. In terms of confidence for the future the survey found that people were least confident about taxation; presumably not unrelated to the fact that UK residents have been contemplating a Gordon Brown premiership all year so far. Respondents were much more comfortable with the tax situation regarding their second homes (abroad?).
The survey found that the majority in the sample looked on their second homes as a medium term investment (7 to 10 years). Interestingly, awareness of global warmingâ€™s effect on Mediterranean and Alpine resorts is already weighing on the collective consciousness to the extent of affecting investment decisions about property.
The wealthy donâ€™t seem as concerned about environmental factors when considering indirect investments in overseas property with markets such as China, India and Russia being favoured. However, the report has apparently made no attempt to link investing trends among the UK sample with statistics on property market performance around the world in its Prime International Residential Index. The latter seems to be purely based on past trends rather than unmeasurable factors such as the overheating of the Chinese economy or the effect of exchange rate changes on investments in Brazil.
While not admitting that the market in prime residential property is becoming speculative or overheated the report does conclude higher interest rates could â€˜unravel the basis for current asset valuesâ€™