Wealthy investors believe that prime residential real estate is one of the best asset classes to own and they regard 2010 as a good year to buy, according to consultants.
Property makes up the largest share of high net worth individuals’ investment portfolios averaging 33%, reveals The Wealth Report 2010 from global real estate consultants
Knight Frank and Citi Private Bank.
Property is highly regarded because of the tangible and straightforward nature of residential real estate, especially during these uncertain times, the report reveals, with some 71% of high net worth individuals saying 2010 will be a good year for property.
They are interested in property for long term capital growth rather than income and with most property markets experienced a horrendous time during the 2008 global economic crash, investors now see their chance to buy at a low point in the cycle.
For cash rich investors ultra low interest rates have meant bank deposits have looked distinctly unattractive, while the low yields on bonds and volatility in the stock market have given additional pause for thought, the report suggests.
‘Added to this, the impact of the financial crash has not been as hard on the typical ultra high net worth buyer of prime property. This has meant that many wealthy owners of property are again looking for investments,’ says Michael McPartland, managing director and head of residential real estate at Citi Private Bank.
‘The wealth market is relatively insulated. Our clients look for opportunities when everyone else is circling the wagons. Buying becomes opportunistic in a downturn, particularly as people turn to hard assets such as property when other assets experience dislocation,’ he adds.
How to buy has never been more sophisticated with a myriad of direct property investment options, funds and listed and unlisted companies, as well as more complicated instruments,such as derivatives, now on offer, he points out. ‘This allows investors to build up a portfolio spread over asset classes and sectors, as well as risk and reward,’ says McPartland.
For many, residential property remains the most attractive investment, given the dynamics that underpin key cities, such as London, New York and Hong Kong. There is a focus on the very prime areas, says McPartland, which are always in short supply and facing steady demand from buyers and tenants in global centres of finance and culture.
Liam Bailey, head of residential research at Knight Frank, says residential investment
makes a lot of sense over the long term for these kinds of buyers. ‘In most locations supply of property either keeps pace or falls short of demand. Most high net worth investors tend to cluster around the best locations in the world,’ he explains in the report.
Key cities such as London with prices up 15% in the 10 months from March 2009, and Hong Kong, up by around 41%, have seen a sharp bounce in prime values since reaching their nadir last year, benefiting from the limits on building, growing demand and sustained investor requirements.
Although this could put downwards pressure on yields, rents are at last beginning to climb, adds Bailey. But there is still uncertainty about short term growth, says Bailey, particularly given the speed of recent growth. He points to the uncertain economic recovery, and the potential for rising unemployment and interest rates, as risks for house price growth.
