In this extract from the 2021 Knight Frank Wealth Report, Liam Bailey, Knight Frank Global Head of Research, presents some of the report’s key findings on how the world’s high-net-worth market has progressed over the past year
The global response to the pandemic supported wealth
With lower interest rates and more fiscal stimulus, asset prices have surged, driving the world’s Ultra-High-Net-Worth Individual (UHNWI) population 2.4 per cent higher over the past 12 months to more than 520,000. The process was seen across North America and Europe, but it was Asia, with 12 per cent growth, that saw the real upswing. The expansion in wealth was not universal, with a fall in the number of UHNWIs in Latin America, Russia and the Middle East as currency shifts and the pandemic undermined local economies.
Asia is the key wealth story
The US is and will remain, the world’s dominant wealth hub over our forecast period, but Asia will see the fastest growth in UHNWIs over the next five years, at 39 per cent compared with the 27 per cent global average. By 2025, Asia will host 24 per cent of all UHNWIs, up from 17 per cent a decade earlier. The region is already home to more billionaires than any other (36 per cent of the global total). The Chinese Mainland is the key to this phenomenon, with a 246 per cent growth forecast in very wealthy residents in the decade to 2025.
Inequality will fuel risks to wealth accumulation
While Covid-19 is viewed as the biggest single risk to future wealth creation, nearly half of Knight Frank’s Attitudes Survey respondents (wealth managers and private bankers) expect the growth in wealth inequality to fuel demand for policies aimed at curbing imbalance – specifically wealth taxes – with new or proposed plans in Argentina, Canada and South Korea likely to be replicated elsewhere.
The world will be less global…
The survey confirms international travel will remain weak, with 84 per cent of respondents expecting to continue to travel less this year. Where this trend could become more entrenched is the notable drop in demand for international education that our survey reveals. However, with 11 per cent of Asian UHNWI house purchases expected to be driven by educational motives, we may see a rise in permanent family relocations to education hubs, with London the main target.
…but the wealthy still want options
Despite a reduced desire to travel, nearly a quarter of UHNWIs are planning to apply for a second passport or citizenship – a remarkable 50 per cent increase in a year. There is a growing tension between rising transparency concerns over citizenship-by-investment schemes and a need to plug gaps in government finances through these schemes.
Long live the city
As urban guru Professor Saskia Sassen explains, history shows us that cities rise and fall, but always rise again. The pandemic, far from undermining the city, has shown the potential for rebirth – expect to hear more about the 15-minute city, green cities, place-making and the coming redevelopment boom. No wonder, then, that development land is the third most popular property investment pick this year for UHNWIs. Our city leaders in 2021 for wealth, investment, business heft and innovation: London and New York. For wellbeing: Helsinki and Madrid.
House prices are rising because of the pandemic, not despite it
Our assessment of the world’s leading prime residential markets confirms that average price growth accelerated over the past 12 months. While Auckland led the pack with an 18 per cent uptick, reflecting New Zealand’s sure-footed handling of Covid-19, even those markets hard-hit by the pandemic are seeing growth. Low mortgage rates, a search for space, privacy and changing commuting patterns are helping push prices higher.
The pandemic-induced residential mini-boom will continue through 2021
The Attitudes Survey reveals that 26 per cent of UHNWIs are planning to buy a new home in 2021, with the biggest driver the desire to upgrade main residences. Our survey points to a growth in demand for rural and coastal properties, with access to open space the most highly desired feature. The pandemic is supercharging demand for locations that offer a surfeit of wellness – think mountains, lakes and coastal hotspots. Demand will help fuel price rises of up to seven per cent for our key markets this year.
Luxury investments confirm the ongoing search for returns
Despite logistical challenges, investors continued to drive values higher for key collectable assets over the past year – led by handbags (+17 per cent), fine wine (+13 per cent) and classic cars (+six per cent). However, a shift to private sales, as auctions were put on hold, saw the art market stutter and values decline. With the disruption to these most global of markets likely to continue through the first half of 2021, it is the second half of the year when investors will likely see the longer-term direction for investment performance.
This extract has been edited for style and length. See the full Knight Frank Wealth Report 2021 at knightfrank.com/wealthreport
Liam is the global head of Knight Frank’s market-leading Research team. Based in London, Liam writes on and presents property market trends around the world with a particular focus on residential markets. He also leads Knight Frank’s flagship publication, The Wealth Report, which tracks private wealth investment into property. Over the past decade, Liam has grown and deepened the market insight offered by Knight Frank’s Research team and now runs a global team of more than 100 people covering residential and commercial property; geospatial insight; data and analytics and customer intelligence.
Image credit: John Wright