HNWI real estate investment: the next five years

HNWI buy, hold, sell intentions in real estate

Real estate shows no sign of falling out of favour with wealthy private individuals. On the contrary: according to the Savills/Wealth Briefing survey, the sector is set to grow in importance among this group. Some 53 per cent of wealth advisors surveyed said their clients intended to increase their direct real estate holdings in the next five years; 41 per cent also planned to increase their indirect holdings. Only 9 per cent said their clients intended to sell their direct holdings, though a slightly higher proportion, at 13 per cent, were planning to disinvest their indirect real estate holdings.

Our analysis suggests that those who hold a higher weighting of real estate in their portfolio are those who are most likely to buy more in the future. This is especially the case for those who hold high levels of indirect property.  Experience of real estate returns in recent years have clearly been encouraging for many investors while others perceive buying opportunities in hitherto non-performing markets.

Those holding less than a third of their wealth in indirect real estate, are less likely to be future buyers (37 per cent) than those who have holdings between a third and two thirds of their wealth in indirect real estate. Of these, 60 per cent are set to increase their holdings.

 

The next five years: top sectors

Source: Savills World Research / Wealth Briefing

Private individuals have a different shopping list from other types of investor, notably institutions. In the world of big-ticket investment deals (over US$10m) private wealth plays as big a part as the institutions (pension funds and insurance companies) at 16-20 per cent of the market.  But private wealth is more likely to buy alternative assets higher on conventional risk curves than institutions and may take a different attitude to development risk.

The return of the speculative development market in recovering real estate markets brings with it a demand for development land, and this is the sector that tops global ‘buy’ intentions. More than half (52 per cent) of advisors at a global level said their client base intended to buy into this sector in the next five years. It is the top real estate sector of choice for both North American and UK UHNWIs and HNWIs.

Agricultural land comes a close second (48 per cent ‘buy’). Such land has performed very strongly in advanced economies, and continues to be attractive for investors seeking large-scale, long-term, stable income streams and wealth preservation. UK farmland has enjoyed spectacular capital value growth over the last five years. In the case of North American farmland, it brings with it opportunity for a reasonable income yield.

The residential sector is third on the HNWI real estate buy list. Residential property remains a status symbol for many, accumulating business bases and leisure property, as well as investment portfolios for income return. Private wealth has a greater propensity to invest in residential than their institutional counterparts. Some 48 per cent of advisors said their clients intend to buy into this sector in the next five years. Residential is the top ‘buy’ for the next five years for Asia-based HNWIs.

There may be potential for more of this investment to be channelled into indirect property management vehicles as appetite switches from private residences to income producing assets.

 

UHNWI and HNWI intentions: top sectors for investment (next five years)

Source: Savills World Research / Wealth Briefing

 

The next five years: top regions

Analysis of UHNWI and HNWI investment intentions by geographical region reveals that UK the is currently the top global ‘buy’. Fifty per cent of those surveyed said their clients intend to purchase there in the next five years.  This is partly because a high number of global investors are based in the UK and are therefore looking to buy in their homeland or adopted home. Also the British are heavily into direct real estate investment in a way that large investing countries, like the USA for example, are not.  

At the opposite end of the spectrum, China and Hong Kong, along with Eastern Europe and CIS, have the lowest proportions of intending buyers. Only 33% are looking in these regions.  Along with Latin America, these regions have the greatest bias toward ‘hold’, at a global level.

 

UHNWI and HNWI intentions: top regions for investment (next five years)

Source: Savills World Research / Wealth Briefing

 

Asia based private wealth

Top buys: Africa & North America

Asia-based UHNWIs and HNWIs are sending the strongest real estate purchasing signals globally, with an anticipation to buy more real estate in every global region in the next five years, apart from China and Hong Kong, which is an equal ‘buy’ and ‘hold’.

For Asia-based private investors, Africa tops the ‘buy’ list.  The Chinese have been investing in African real estate to secure food production and resources for fast-growing home markets. Some 83 per cent of Asia-based wealth advisors said their clients intended to buy African real estate in the next five years. North America comes a close second, with 75 per cent of Asia-based advisors citing it as a client ‘buy’.

In the US residential markets China is now the second largest international buyer group, behind Canada. Appetite for US commercial property is growing rapidly.

 

North America based private wealth

Top buys: Latin America and North America

For North American UHNWIs and HNWIs, real estate investment is set to stay closer to home. In spite of economic slowdown in some Latin American economies, this region is the strongest ‘buy’, with 50 per cent of advisors indicating their clients intended to purchase here in the next five years. Mexico stands out particularly. The US market is the other major ‘buy’ for North American real estate buyers in the next five years, with 49 per cent intending to buy in their homeland.

 

Western European based private wealth

Top buys: UK and Western Europe and Nordics

For Western European UHNWIs and HNWIs, the home markets are the top ‘buys’, with 52 per cent of advisors citing the UK as their clients’ choice for future real estate purchase, followed by Western Europe and the Nordics, at 44 per cent. In the UK, recovery in the regions, coupled with London’s world city credentials will support growth. 

Western Europeans are the only global region that cite Western Europe and the Nordics as a majority ‘buy’ market (44 per cent), suggesting local knowledge may better help navigate opportunities in a multi-speed Europe.

 

Global prospects

These findings suggest that the next five years will see even greater demand for global real estate from UHNWIs and HNWIs. This is likely to be focused on land and residential property. Interest in industrial units and offices is holding up despite some significant sellers but a quarter of respondents think the time is coming to sell retail.

As private investors and real estate investors and become fully allocated in core markets, a move into new sectors is the next logical step, particularly for investors seeking income returns. Regional trends suggest a preference for familiar and well-trodden markets, but with appetite for some risk in the growth markets of Africa and Latin America.

The tendency to ‘hold’ is high among all UHNWIs and HNWIs studied.  Properties are typically held long term, often with the intention of passing onto the next generation. This is in contrast to institutional investors, for example, who regularly rebalance a portfolio with shorter-term performance in mind.

 

Further information

Visit Savills World Research

 

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Paul Tostevin

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