How the wealthy invest

Why property continues to be seen as a big investment, how the wealthy are increasingly being scrutinized, and the cities of the future. The second in the two-part series on Knight Frank’s Wealth Report, 2016

Property Index

Property investments form a large part of the investment portfolio of the Ultra High Networth Individuals (UNHIs). In fact, as the Knight Frank report states, “the past decade has seen remarkable growth in cross-border investment by individuals, with property forming a significant part of the story. While transparent data on investment into residential property is not available on a global basis, the graphic Ten Year Shift in global wealth movements uses the latest IMF data to draw together a comprehensive picture of capital movements.”

London

The general trend over the past decade has been for significant growth in cross-border investment, led by massive growth in outflows from China (+1,471%) and in absolute terms, if not rate of growth, from the US. In fact, there has also been rapid growth in outflows from markets such as Indonesia, Thailand and South Korea. But China has also seen massive inflows: economic instability in markets such as Italy and Greece has led to relatively strong outbound investment flows in Chongqing business district. The investment amount has risen substantially since 2005, by almost a staggering 500 per cent, followed by inflows into Brazil (294%), Singapore (285%), Hong Kong (222%) and Australia (146%).

Under Scrutiny

Even as the wealthy get wealthier, governments across the world have put in mechanisms to monitor their transactions and tighten the screws so that they do not evade tax. Most countries have seen an increase in tax transparency over the previous two years – with considerable improvements in locations such as the Cayman Islands and Luxembourg, where most of the world’s rich and famous park their money.

Shanghai

The Cities that will Boom

Every Knight Frank Wealth Report lists the cities of the future, the cities that will boom, economically and in terms of lifestyle. London has beaten New York for the second successive year to win the accolade of ‘most important city to UHNWIs’, according to the results of Knight Frank’s Attitudes Survey of wealth advisors. Also on the list of the top ten cities are Singapore, Hong Kong, Shanghai and Dubai.

Singapore

The biggest threat to London as a premier city is the impending changes in taxation laws, reflecting five years of relatively rapid tax reform in the UK, followed by changes to financial regulation driven by the impact of EU and domestic activism on London’s financial sector. In New York, tax and financial regulation risk were joined by the threat from terrorism, which ranked only marginally lower in London’s case.

Shanghai and Singapore have emerged as the challengers to London and New York as the cities of the future. The Knight Frank report states, “There is no direct correlation between the locations where the wealthy are normally resident and the locations their advisors view as being most important to them. This reflects the itinerant nature of many UHNWIs, who increasingly educate their children overseas while working and living in multiple international locations.”