Research article

Trends in wealth and real estate

For centuries, power, wealth and land have been inextricably linked.

Throughout history, the accumulation of wealth has often gone hand in hand with the acquisition of land. Status and power in cultures as diverse as feudal Japan, medieval Europe and dynastic China were inextricably woven with the ownership and control of land. Later industrialisation saw the acquisition of land and the construction of grand houses. These were a hallmark of new wealth for those who wished to acquire the lavish trappings of the more established moneyed-classes.

Status symbol

In the current post-industrial era, there is a looser fit between land and power but real estate, especially an individual’s private residence or residencies, still remains a status symbol for many. A global real estate market has emerged among UHNWIs, many of whom are worldwide players in their hunt for a business base as well as investments in residences and second homes.

This means that a growing population of UHNWIs around the world are having a significant effect on real estate markets at a global level. It is important for those involved in the global real estate world of cross-border investment to understand this particular strand of investor behaviour.

Meanwhile, the corporate and institutional ownership and acquisition of real estate globally that once dominated property markets, suffered a setback in 2008 as credit markets shrank and the availability of debt funding for property deals diminished. The co-incidence of the rise of private wealth, particularly in the “new world” and diminished debt availability, especially in the “old world” has been a fortuitous and game-changing combination.

Commercial side

Sovereign wealth funds, wealth management companies, private banks and family offices have stepped into the property deals that corporate bankers have deserted.

Indeed the general willingness of private wealth to take the place of debt finance or to take higher-risk development positions is now making the difference between deals done or schemes mothballed.

This means that the tastes and preferences of private buyers are having an impact not only on the so-called “investments of passion” – the mansions, holiday homes and landed estates, for example – but also on commercial property transactions that would have been the domain of the corporate sector just 10 years ago.

It is this “serious”, commercial side of private real estate in which we are especially interested. The propensity for UHNWIs to take real estate exposure, their preferences and tastes in doing so and their behaviour, either in direct property ownership or through family offices and other commercial entities, is changing the face of all real estate: offices, industrial, residential, retail as well as “niche” projects.

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