Investment property is UHNWI darling

Investment property is UHNWI darling

Real estate accounted for around two-thirds of Ultra-High-Net-Worth Individuals’ (UHNWI) assets with investment property making up half. And within it, “luxury homes became the asset class of choice for UHNWIs” says the latest Knight Frank Wealth Report.

The research also confirmed the rise in the global UHNWIs, up by 30 million in 2021. Growth expanded across the globe with a 28% increase expected in the next five years. As was the case in 2021, prime property will continue to be the preferred investment vehicle.

Investment property major assets

The Wealth Report revealed that around two-thirds of UHNWI assets lie in property. Principal and second homes account for just under half of this with investment property making up the rest.

Returns from prime real estate were high in 2021. According to Knight Frank, “luxury residential markets around the world enjoyed a red hot 2021”. As a result, the Index rose by 8.4% last year, its biggest annual increase since 2008.

Investment property also posted strong results. For example, the MSCI Global Property Fund registered a 10% uptick in 2021 while the Macrobond FTSE EPRE/NAREIT World Equity REITs Index reported a 33% return.

Demand for prime real estate

The Wealth Report also found that luxury investment property is subject to high demand worldwide. It attributes this to several factors:

  • Low supply of prime real estate.
  • Savings accrued during lockdowns and travel restrictions in 2020.
  • Shifts in lifestyle patterns.
  • Increased demand for larger homes.
  • More global wealth.
  • Investment property as a preferred asset in the face of inflation.

As a result of this demand, prime real estate prices soared in 2021 globally. 35 of the 100 markets including on the Knight Frank Index saw house values go up by more than 10% and just 7 experienced a drop in prices.

More UHNWIs in 2021

The Wealth Report revealed that the world’s UHNWIs went up by 9.3% last year. The Report attributes the rise to the pandemic, which has led to “amassed savings and an increase in levels of wealth that has not been seen for years”.

However, global growth was not uniform. For example, North America saw a 12.2% rise in individuals worth over US$30 million while in South America, the increase was 7.6%. At individual country level, the US experienced the biggest uptick in its UHNWIs with a 13% increase. The UK and France were close behind with 11% and 10%, respectively.

Further UHNWI growth expected

The Wealth Report expects a continuation of this trend over the next five years. It predicts that Asia and Australasia will see the most significant growth in their UHNWI populations by 2026 (up 33%). In North America, it will rise by 28% and in South America, by 26%. Europe’s wealthiest will grow by 25%.

As a result, prime real estate and investment property will remain favoured havens for wealth across the globe.

(Source: Knight Frank)