High net-worth individuals see high-end residential property as one of the best asset classes to own, predicting growth in 2010.
London-based Knight Frank, a global property consultancy, and Citi Private Bank recently published "The Wealth Report 2010," a 45-page report that surveys the outlook of high net-worth individuals towards global high-end residential property.
Reviewing property in cities from Dubai to Shanghai, the report talks about price changes, market-by-market insight, spread of global wealth, risks and even the expanding role of Islamic banking.
Here are summary points:
- High net-worth individuals, globally, see high-end residential property as one of the best asset classes to own. This is because of the tangible and straightforward nature of residential property, especially during these uncertain times.
- Seventy-one percent of high net-worth individuals think 2010 will be a good year for property. Comparatively, 68% are optimistic on equities, 67% are optimistic on hedge funds, 41% on cash, 38% on gold, 36% on derivatives and only 27% are optimistic on bonds.
- Property also makes up the largest share of high net-worth individuals' investment portfolios, making up 33% of the mix.
- High net-worth individuals are interested in property for long-term capital growth rather than income.
- Shanghai was the top gainer last year at 50%, followed by Beijing at 47% and Hong Kong at 41%. Dubai performed the worst with a decline of 45%.
- Within key cities, average price per square foot ranged from $5,900 per square foot in Monaco to $700 per square foot in Shanghai. New York, at $2,100 per square foot, is less expensive than cities such as London ($4,400), Paris ($3,300), Geneva ($2,500) and Tokyo ($2,200).
- New York is the No. 1 ranked city based on economic activity, political power, knowledge/influence and quality of life. London was ranked No. 2, Beijing No. 9. The key features of New York are Wall Street, the up-and-coming meat packing district residential zone and New York University, the largest private higher education institution in the U.S.
- Perhaps the most interesting observation is the allocation to property in high net-worth individuals' investment portfolios. The financial media, based on asset allocation models, lead us to think that equities would make up the largest share while real estate, given its illiquid nature, should be limited to 15% of one's portfolio.
The report's finding of property having a large, 33% share of High net-worth individuals' investment portfolios is consistent with what I, as a residential property broker in Manhattan, observe from my high net-worth network. Manhattan apartments appreciated by 10% annually from 1997 to 2009 while the
Dow Jones Industrial Average
appreciated 2%. Add in leverage, typical with property ownership, and the returns become significant.
Wei Min, CEO of Castle Avenue Partners, is a real estate entrepreneur focused on brokerage, investments and management. Previously, Wei Min was VP at Citigroup responsible for a $500 million portfolio. He received Citigroup's prestigious Chairman's Award, a recognition awarded to the top 2% of managers. He was also Director of Travel Insurance at American Express where he managed a $180 million portfolio. Wei Min's first exposure to real estate was in 1998, when he helped develop mortgage strategies at Citimortgage. He has traveled to many cities to view thousands of properties. In addition to English, he speaks Cantonese, Malay and is conversant in Mandarin. He is a runner who frequently races at 10K and half marathon distance events. Wei Min holds a black belt in tae kwon do and works out at the gym almost everyday. He graduated with an MBA from the University of Illinois at Urbana-Champaign and a BBA from Marshall University. He can be reached at firstname.lastname@example.org www.castle-avenue.com.