As economic growth continues in China, all four tier-one cities are set to achieve new heights in worldwide city rankings, according to the seventh edition of Knight Frank’s Wealth Report.
The report features in-depth analysis of trends affecting economic growth and wealth creation around the world, including rankings of locations of importance to the world’s wealthy by assessments of four key measures: economic activity; political power; quality of life; and knowledge & influence.
Liam Bailey, Head of Residential Research, said: “According to our Global Cities Survey, London and New York are still the most important destinations for the world’s wealthy but in ten years’ time there will be more Asian cities at the top of that list. By 2023, our survey of HNWIs will show Shanghai and Beijing joining the top 10 at the expense of Geneva and Paris.”
This year, Shanghai is ranked the fifth most important economic centre in the world, under New York and London (numbers 1 and 2, respectively) but above regional economic centres Hong Kong and Singapore (7 and 8, respectively). Beijing comes second as a centre of global political influence, one spot under Washington DC and, crucially, one above Brussels.
Following Shanghai’s and Beijing’s move up the ranks, many other top-tier cities led by Guangzhou and Shenzhen are also creating wealth very quickly and expect to see triple-digit increases in HNWI population and global importance. “Spurred in large part by growth from emerging economies around China, wealth creation in China has not slowed down in the wake of the financial crisis,” said Nicholas Holt, Knight Frank Research Director, Asia Pacific. “Chinese investors are making their impact felt around the world. While Western HNWIs are becoming more risk tolerant as the global financial slowdown continues, many wealthy Chinese are structuring their portfolios differently. We are seeing multiple different trends at work as they seek more conservative real estate investments on one side, but they also are making investments that allow them to enjoy their wealth, too,” he commented.
Lawrence Wong, Alternate Chief Executive of Bank of China International Limited, the private banking service arm of BOCI Holdings, added: “HNW clients in the region are looking for safe havens, having experienced the credit crutch in the EU. Clients are rebalancing their holdings to shift more investment into China.”
Knight Frank’s luxury investment index has shown that collectable assets such as art, fine wine, classic cars, coins and watches have accrued cumulative gains of 175 per cent over 10 years (and 6 per cent last year). Chinese HNWIs are leading this trend, reshaping the global markets for art as well as antiques, jewellery, and other luxury items.
Additionally, the report shows an evolution of the map of the world’s wealthy, with a new concentration of wealth in Asia. Globally, the number of billionaires will increase by 85 per cent over the next 10 years, with the biggest increase being in Asia, 119 per cent. The Top countries for billionaires is still the US with 543 and will grow by 103 per cent by 2022 but China in that time will increase from 154 to 483, an increase of 214 per cent.
China’s property among the most expensive worldwide
Prime residential property in China has the potential to provide huge gains to investors, as the 2013 Wealth Report released today by Knight Frank shows. Especially in cities like Shanghai and Guangzhou, prime property values demonstrate sustained growth far above that of other globalized centres of property investment.
Policies aimed at cooling the property markets in major cities have nevertheless led to a marked difference between growth rates in Beijing, where policy controls have been tightest, as compared to other tier-one cities such as Shanghai and Guangzhou. Investors seeking speedy capital gains should consider these cities and other major real estate markets in China, which grew significantly faster: Shanghai at 10.8% and Guangzhou at 12.5%, compared to Beijing’s 2.3% growth year-on-year.
For example, prime real estate in Upper East Side, a centrally located prime development near Beijing’s CBD, has risen in value 3% from a year previous; similar property at Shanghai’s One Park Avenue development rose 10% in the same period. In fact, prime property in Shanghai now ranks among some of the most expensive in the world, 10th place. This puts Shanghai squarely above key locations such as Tokyo and Los Angeles (14th and 15th place, respectively), however Monaco takes the top spot with Hong Kong in second place.
According to the report, Knight Frank predicts further gains for prime property values in Shanghai and Guangzhou, as demand remains high. As these two markets are targets for investment from other areas in China, they are subject to the economies of other areas of the country, however they also benefit from increasing urbanization and wealth creation in lower-tier cities. Even in uncertain economic times, residential prime real estate remains the largest share of investments for most Asian investors, and for real estate investors in general.
The value of prime property in Chinese cities rises in tandem with a growth in the number of high net worth individuals investing in those cities, however as the report notes, this group’s investment habits are notoriously risk-averse. Chinese buyers’ impact is being felt outside of Mainland China as well, pushing up real estate values in Southeast Asia, Australia, and New Zealand. Fueled in part by money coming in from China, prime real estate values in Jakarta rose 38% in 2012 compared to 20% in Bali, and 12.7% in Auckland. Even Hong Kong, where legislation designed to limit foreign real estate investment came into effect this year, saw gains of 8.7% in the prime sector. Top markets worldwide such as London and New York continue as safe havens for investors from around the world, and analysts are seeing signs of a resurgence in prime markets elsewhere as well following inflows of capital from emerging economies in Asia and the Middle East.
Beijing commercial real estate values up as private investors realize huge gains
Private Chinese investors’ recent interest in commercial property mirrors a global trend, according to the 2013 Wealth Report. In order to diversify their portfolios, private investors worldwide are turning to commercial real estate, according to the report, with a total of USD 92 billion spent by private investors on commercial property in 2012 as compared to USD 47 billion in 2009.
Regulatory environments around the world are also a key factor pushing this trend. Following the Chinese government’s stricter controls on residential property in the wake of the rapid price acceleration in 2010-11, many Chinese investors have been exploring commercial property to continue to benefit from rising land values. Crucially, in Beijing, the market where restrictions on residential real estate purchases were most closely regulated, commercial real estate grew 23% in value in 2012, a full 20% more than Shanghai in the same period.
Knight Frank expects these cities to continue to improve in value in the near future, especially Beijing. Shanghai in particular is expected to remain constant in its low growth as supply increases with a large number of mixed-use developments including retail space and office space are set to come online this year. Beijing however expects supply to remain relatively constant.
Knight Frank’s research also shows high potential for growth in lower-tier cities as many developments enter these markets. In the wake of infrastructure and economic pushes undertaken by local governments, many lower-tier cities are developing potentially lucrative commercial property markets with accelerations both in demand and supply, as mixed-use developments are expected to come onto the market in the near term.
Nick Cao, Knight Frank China Manager, Head of Investments and Capital Markets, said: “Beijing’s growth in this sector has been phenomenal, and we expect this to persist as long as restrictions on residential real estate continue. As for lower-tier cities, retail is a good option to consider as demand from local consumers is quite strong while many cities’ comparative focus on manufacturing and the industrial sector pushes down the value of office and hotel space.”
International markets showed growth that, while sustained, was more conservative than that of Mainland China. Hong Kong’s retail market in particular has been very strong and is expected to push retail space values up by 10-15% in 2013, spurred in part by a near-constant influx of shoppers from the Mainland. Retail space in Kuala Lumpur is also predicted to grow by 6% for the same reason. Retail and office space in London and New York is a particular bright spot for investors from around the world.
Chinese investors show their passion
Wealthy Chinese investors worldwide are looking for assets that satisfy both head and heart. Knight Frank’s Luxury Investment Index maps the place where investment meets personal passion.
As new research compiled by Knight Frank shows, across Asia, a net balance of 19% of high net worth individuals (HNWIs) spent more last year on luxury goods than in 2011 as Chinese wealth makes itself felt around the world. As HNWIs from Europe and America spent less following the global financial crisis, their Chinese counterparts have not slowed down, helping to push Chinese luxury brands such as Moutai and Sun Valley Ice Wines up world rankings. Ledbury Research shows that Asia-Pacific’s share of the world’s leading luxury brand outlets increased from 39% in 2009 to 44%, while North America’s fell from 30% to 24%.
Luxury spending comes from Chinese HNWIs’ desire to enjoy the fruits of their labour. This same impulse leads to investments of passion, such as art, wine and classic cars, which occupy a unique and fascinating niche that combines aspects of luxury spending with collecting and investing. When asked to select the most collected passion investments, respondents in all regions of the world chose fine art. Art was also the sector where spending activity increased the most last year, with a net balance of 19% of respondents predicting clients to spend more on art in 2012 and 13% expecting the trend to continue into 2013.
“China is now the world’s largest market for art,” says Viola Raikhel-Bolot, Head of International Art Advisory at 1858 Ltd, a leading art advisory firm. China’s share of the global market in 2011 was 30%, up from 23% in 2010, compared with 29% for the US (down 5%) and 22% for the UK.
The next most-collected asset overall was watches. In November 2012, an Asian collector bought a platinum chronograph Patek Philippe wristwatch owned by British rock guitarist Eric Clapton for the equivalent of US$3.6m at a Christie’s sale in Geneva. Wine was the third most popular passion investment, scoring highly in all areas bar the Middle East. Jewellery and classic cars complete our global top five.
Keith Heddle, Investment Director at Stanley Gibbons, says philately is definitely on the up among HNWIs, including in China. “Chairman Mao banned stamp collecting as bourgeois; now there is a resurgence,” he says. As with art, collectors in emerging nations tend to be patriotic when choosing what to buy and this can cause local markets to overheat, adds Mr Heddle. By contrast, most serious investors have very little interest in the stamps themselves, he says. “They have often just been badly burned by more traditional investments.”
The Knight Frank Luxury Investment Index is based on the weighted performance of existing indices for nine collectable asset classes: art; Chinese ceramics; classic cars; coins; furniture; jewellery; stamps; watches; and wine.
To download the report:
Throughout this report, we use HNWI as an abbreviation for high-net-worth individual. Unless otherwise stated, an HNWI is defined as someone with US$30m or more in net assets. Net assets include homes and take into account debt and liabilities where ascertainable.
The most desirable and most expensive property in a given location. Prime markets often have a significant international bias in terms of buyer profile.
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