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Super Cities still a hot favourite amongst the Ultra Rich

20 July 2017

Malaysia – In the eyes of the Ultra-High-Net-Worth individual, the Super Cities* are still an attractive investment, as evidenced in Knight Frank’s inaugural Active Capital Report.  At 41%, Los Angeles and Sydney registered the highest proportion of private investor transactions in 2016.  Over in Asia, Hong Kong was top of the list at 31% with Shanghai, Singapore and Tokyo trailing closely behind at 24%, 27% and 22% respectively.  This long-standing interest in the Super Cities stems from the latter’s solid fundamentals including tenant demand, liquidity and transparency.

 

Source: Active Capital Report, Page 15

 

Private investors, already a strong presence, are becoming an increasingly important force in the global real estate marketplace.  27% of all global commercial property transactions in 2016 involved a private buyer. Furthermore, a quarter of wealth is held in real estate investments of some kind (excluding primary residences and second homes), the highest allocation since records began.  Many of them have shown a preference to invest in commercial property within their country of residence (Asia 44%, Europe 40% and US 36%) as compared to outside the country they live in (Asia 26%, Europe 25% and US 24%). 

As private investors grow in importance, institutional investors are realising that they are a key buyer type whose drivers are often very different to their own and need to be understood; as they are likely to either be competing against them in a purchase negotiation or trying to sell to them as part of an exit. 

Private investors are expected to continue to take global market share as both the number of wealthy individuals and their assets grow. The number of Ultra-High-Net-Worth Individuals (UHNWIs) – those with US$30 million or more in net assets – rose by 6,340 in 2016 alone, taking the total to 193,490.

 

Mr Nicholas Holt, Head of Research for Asia Pacific at Knight Frank, says, “Real estate has long been the cornerstone of the private investor’s investment portfolio. This situation continues to evolve as private capital becomes more knowledgeable around the intricacies of commercial real estate; with many investors having now taken their first steps into income-producing office, retail and industrial assets. In Asia, with the number of UHNWIs set to increase by 91% over the next decade, we expect this trend to continue and private capital to play an increasingly important role across the major markets within the region.  

 

The appetite from private investors for commercial property, in particular, will continue to increase over the next few years. In Asia, 81% are keen to invest in commercial property within its region, 32% in Europe and 24% in North America.  In contrast, only 7% of European private investors are keen on commercial property in Asia with 95% preferring to invest within Europe. North America paints a similar picture indicating no interest in Asia (0%) with a strong preference for domestic commercial property (93%). However, when it comes to the type of commercial property, private investors in Asia, Europe and North America share a common liking – residential and office space. 

 

% responses

Asia

Europe

North America

Residential

58%

61%

50%

Offices

48%

46%

36%

Retail

23%

27%

14%

Source: The Wealth Report Attitudes Survey

 

Asia is starting to challenge the US in terms of the largest regional population of UHNWIs. At present, Asia is home to 27,020 fewer ultra-wealthy people than the US, but by 2026 this difference will have shrunk to just 7,068. However, while North America may not top the growth rate charts, it will remain the largest hub of UNHWIs in 2026 and growth will continue to outstrip that of many other developed economies. As China continues to lead the way in Asia, places like Vietnam, Sri Lanka and India will also see substantial expansion.  

Source: Active Capital Report, Page 14 

 

While the drivers behind the investment purchases will vary greatly depending on the motivations of the individual, there are a number of investment themes in the market. 

 

Risk mitigation: Risk, especially political and economic, will continue to be high on investors’ agendas in 2017. Individuals are looking to diversify at both a portfolio and geographical level. Real estate provides the ability to achieve targeted investment decisions in terms of location, sector and tenant components as well as provide regular income and an underlying asset with residual value. 

 

Control: One of the consequences of the global financial crisis was that many investors looked for more control over their assets. Real estate, with its direct ownership structure, diversity of lot sizes and choice of asset management approaches is attractive to those not wanting to pass decision making to third-parties or to be constrained by the closed-end fund model of transacting at specific times plus the need to reach an alignment of views between the investors. 

 

Currency diversification: While foreign exchange returns are not generally a driver for property investment, currency movements and capital controls have, in some instances, been a trigger for investors looking to externalise capital from locations implicated. 

 

Portfolio globalisation: Many UHNWIs have, either directly or indirectly allocated part of their asset portfolio to real estate and, as they accrue more wealth, they increasingly become fully exposed to their domestic market and look to new markets to diversify their portfolios.

 

ENDS

To download the report, please click: https://kfcontent.blob.core.windows.net/research/1298/documents/en/active-capital-the-report-2017-4803.pdf

To watch the report video, please click: http://bit.ly/KF_ActiveCapital

To read the blog, please click: http://www.knightfrank.com/blog/tag/active-capital-report-2017

 

For further information, please contact:

Mr Nicholas Holt, Asia-Pacific Head of Research
nicholas.holt@asia.knightfrank.com +86 10 6113 8030 @nholtKF

Ms Rachel Loke, Asia-Pacific Head of Marketing, Communications & Digital
rachel.loke@asia.knightfrank.com +65 6429 3587 @knightfrank

Ms Seline Soo, Marketing & Communications Manager, Knight Frank Malaysia

seline.soo@my.knightfrank.com +603 2289 9669 @KnightFrank_my

 

 

Notes to Editors

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 14,000 people operating from 413 offices across 60 countries. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit knightfrank.com.

Knight Frank has a strong presence in Malaysia with its headquarters in Kuala Lumpur as well as branches in Penang, Johor and Kota Kinabalu. The company offers high-quality professional advice and solutions across a comprehensive portfolio of property services and is registered with the Board of Valuers, Appraisers and Estate Agents. The Company is licensed to undertake property, valuations / consultancy, estate agency and property management and is also on the panel of all leading banks and financial institutions. For further information about the Company, please visit www.knightfrank.com.my.