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Where is the smart money going?

Source: Shanghai Daily | September 5, 2016, Monday | Print Edition

RECOVERING participation by institutional investors means that investment share by private wealth has since reduced slightly but still accounts for between 16 percent and 20 percent of all big ticket global transactions. The investing intentions of this sector are thus still an important indicator, especially as leverage tends to be low and the appetite for alternative assets high (see fig. 1).

The role of private wealth has been instrumental, for example, in the development of the student housing sector outside the US. Many privately funded blocks built in the UK are now being traded to US institutions. It is therefore worth understanding not just in which sectors ultra high net worth individuals (UHNWIs) and high net worth individuals (HNWIs) are interested, but also which geographies. This article looks in detail at future investing intentions of this group from a survey of advisors undertaken by Savills World Research with Wealth Briefing in 2015.

We asked wealth advisors to identify the sectors, regions and cities in which their clients intend to buy, hold and sell real estate in the next five years. The aggregated results are shown opposite (see fig. 2).

Gateway global cities remain buys, despite very strong recent performance and plateauing prices in some of them. Important global centers of business such as London and Dubai lead the pack, and reflect the trend for UHNWI and HNWI to invest in the cities in which they are active in business, visit often or simply know.

The results of our survey also reveal a broadening of purchasing intentions to other centers. Madrid, Manchester, Barcelona and Chicago are all emerging as net buys. This reflects a global trend in a crowded investors’ market toward higher yielding secondary property, second-tier cities and alternative assets.

European cities exhibiting this trend include Amsterdam, Oslo, Brussels and Berlin.

In Asia, Tokyo looks set to see more UHNWI and HNWI investment as market recovery gathers pace. Singapore is a buy, along with neighboring Johor Bahru, a nod toward the strategic benefits of the neighboring Malaysian city. Cities in emerging economies also feature on shopping lists for the next five years. Manila is a pick in the Philippines, Vientiane as Laos’ economic center, and Phnom Penh, Cambodia’s fast-growing capital.

In Latin America, Mexico City is a hold among UHNWI and HNWI, while smaller Querétaro, a safe, business-friendly city with a historic center (designated a UNESCO world heritage site), is a buy. In Argentina, Mendoza, the largest wine-producing center in Latin America and gateway to the Andes, stands out as a city of choice in the region.

In the US, UHNWI and HNWI investors are set to concentrate in certain pockets: the Pacific Northwest, California, Texas, parts of the southwest and northeast, along with Toronto in Canada. Cities in these regions are driven by the knowledge economy, fastgrowing local populations and, in many cases, a burgeoning tech industry.

Net holds (but not new buys) include Beijing, Shanghai and Hong Kong and reflect the fact that these are already fully invested cities. In the US, prospects for Los Angeles, New York, Washington DC and Miami remain positive but as economic recovery spreads across the country there are numerous other buying opportunities, especially in small tech-friendly regenerated cities.

African centers, including Nairobi and Cape Town, are net holds. While there has been plenty of foreign investment into income-producing assets on the continent (such as land and mining), African cities have yet to experience the same levels of inward investment seen into other regions. Africa is likely to see more acquisition activity — especially beyond the five-year horizon of our survey.

 

The article is adapted from the “Around the World in Dollars and Cents” report by Savills.

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