March
24, 2010
Property still top draw for wealthy
Survey shows 70% believe this is a good year to invest in property against
68% who favour equities, reports GENEVIEVE CUA
PROPERTY investments still take pride of place in high-net-worth (HNW)
individuals' portfolios, accounting for a third of investments, a survey
by Knight Frank and Citi Private Bank has found.
But
only 13 per cent of wealthy respondents said they were planning to buy
a new primary residence this year. While 37 per cent said they would
consider a second home, almost half the respondents said they would
not use debt to fund the purchase.
While survey respondents - who are Citi clients - are cautious, about
70 per cent believe this year will be a good year to invest in property,
followed by 68 per cent in favour of equities. The least favoured asset
class was bonds. The survey was conducted in January.
No details are available, however, on how many respondents took part.Says
Aamir Rahim, Citi Private Bank Asia Pacific chief executive: 'Although
equity and property markets have bounced back sharply, the survey responses
suggest wealthy investors remain concerned about the state of the global
economy . . .
'When making property investment decisions, capital growth prospects
are the main driver, followed by asset stability and then yields.'
He adds: 'Although relatively few respondents were planning to purchase
a new primary residence this year, a significant proportion do see buying
opportunities in the current market . . . It's clear that the wealthy
still see property as a vital part of their investment portfolios and
feel comfortable with it.'
Capital appreciation
Property has a weighting of roughly 33 per cent among the survey respondents,
followed by equities' share of 24 per cent. Some 35 per cent of respondents
expect equities to be the best-performing asset class in 2010, followed
by hedge funds and property.
Among the types of property exposures, residential property is expected
to fare the best, followed by commercial property and agricultural property.
The big question is the capital appreciation potential of some of the
real estate markets which rose significantly last year.
Based on Knight Frank's Prime International Residential Index, Shanghai
real estate registered the steepest upward trajectory with a 52 per
cent rise last year. This was followed by Beijing's 47 per cent and
Hong Kong's 40.5 per cent. Singapore ranked fifth in terms of the pace
of price change, with a rise of 17 per cent, on par with Johannesburg.
Among other markets, the biggest plunge was in Dubai where prices fell
45 per cent. This was followed by Western Algarve in Portugal with 30
per cent. Liam Bailey, Knight Frank's head of residential research,
said prime residential properties saw a polarisation last year. Asian
cities - especially in China - recovered strongly, but most other locations
continued to fall.
'I do believe that we will see this gap narrow again in 2010. It seems
unlikely that property prices in cities such as Shanghai can continue
to grow at these kinds of rates. In many (other) locations, there was
positive growth in the latter half of 2009.' New York real estate, for
example, rose 2 per cent in the second half, but fell 12 per cent in
the whole year.
Mr Bailey said fiscal intervention by administrations in Beijing and
Washington means those cities are increasingly viewed as financial as
well as administrative hubs - that is, having an impact on the cities'
prime property markets as banks gravitate towards them.
'Although there are still questions over the state of the global economy,'
he said, 'property remains a core part of the wealthy's investment portfolios
. . . Current price falls will be viewed by many as a buying opportunity,
but as the data from our Prime International Residential Index shows,
these windows of opportunity do not always remain open for long.'
Boost from IRs
On Singapore property, in particular, Knight Frank's residential division
head Peter Ow expects prime prices to climb another 10-20 per cent this
year and outperform the overall market. Buying interest is expected
from China, India and Indonesia.
'The opening of the IRs (integrated resorts) will present more leasing
opportunities for high-end residential properties and will help create
new residential enclaves, strengthening the overall living experience
of these new clusters,' he said in the report.
Mr Bailey points out that low interest costs have protected potentially
distressed owners and reduced the supply of property for sale. At the
same time, low savings rates have spurred the wealthy to move out of
cash and into property in search of yields. This has driven demand for
property higher and against the backdrop of tight supply, has pushed
values upwards in some locations.
'Ironically, the unintended consequence of government economic stimulus
packages has been to support demand and pricing in top-end residential
markets - probably not something governments would readily admit to.'
The
obvious question is whether current pricing is sustainable. 'Our view
is that most prime markets are suffering from an undersupply of stock
and this will help maintain prices in the short term. Looking further
ahead, however, it is those locations that offer a genuine lifestyle
attraction to the world's wealthy, rather than just an investment opportunity,
that will prove most sustainable,' he wrote.
