Super rich increasingly invest in property

© Andrei Kovalev – 123RF.com

Making reference to a London Financial Times article published last year on where and why the super-rich are investing in real estate, Bill Rawson, Chairman of the Rawson Property Group, said that since the 2008 financial crisis, real estate has become a great deal more attractive to the super rich, especially those looking for safe havens and symbols of power and sophistication.

"While this has always been the case," said Rawson, "it is clear from certain reports such as those from Savills that the recession has speeded up the process as never before. Between 2008 and 2012 the amount of private wealth worldwide invested in real estate valued above $10 million dollars increased by 111% - to just over $300 billion - while corporate investment in the same sector over the same period rose by only 43%. It is clear, too, that the main driving force behind this upsurge are the new Asian high net worth individuals and ultra-high net worth individuals.

"According to Savills," said Rawson, "today just over 30% of wealth owned by the Asian super rich is invested in real estate or real estate related funds such as REITS and they are now investing worldwide."

"Several reports that I have read," said Rawson, "indicate that, having already done exceptionally well out of property in such major eastern cities as Singapore, Mumbai, Kuala Lumpur and Hong Kong, Asian buyers are now targeting London, New York, Paris, Monaco, Berlin, Stockholm and other apparently secure Western world seats of capitalism."

The Asian property buying trend

As the above list shows, said Rawson, the Asian buyer has a marked preference for big cities which absorb 90% of his investments rather than the holiday locations, especially for skiing, equestrian and water sports, which are favoured by the US and European high net worth individuals.

Ian Bailey, head of Knight Frank's residential research, said that, coming off a fairly low base, the Asian property buying trend is set to gain further momentum and he foresees Chinese buyers beginning to favour not just the big cities but also favouring investment in the rural areas of France and Italy, particularly vineyards.

Former South African Rupert Valpy, an estate agent associated with Sotheby's Realty now living in the Dordogne and specialising in the marketing of French wine estates, has said that over 70% of his enquiries over the last year have been from Chinese and Russian buyers.

South Africa's super-rich, said Rawson, are also buying worldwide and here the motivation often appears to be finding an investment that will act as a hedge against a fall in the rand.

A second global trend in property, said Rawson, is to go for 'crowd funding'. This is a process by which developers or possibly even property traders invite the public to invest in their fund or project.

"The big advantage," said Rawson, is that the developer, no longer being reliant on bank funding, in theory should be able to give the investor a higher return and this is very attractive to many Europeans and Americans right now as the major banks worldwide are paying exceptionally low interest rates, often as low as 1.5% or 2%."

Rawson said that he has as yet had no exposure to this type of funding but it does appear to have much to recommend it.

"The downside could be that it might be an easy way for a less competent operator to raise funds with absolutely no guarantee of a return. One such scheme which I read about in Africa to the north of us has already been exposed as highly unlikely to give satisfactory dividends of any sort."