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SPENDING HABITS OF THE ULTRA-WEALTHY

Spending habits of the ultra-wealthy

June 2016

Million dollar paintings, luxury cars and a shift towards commercial real estate – Cityscape magazine investigates the spending habits of the GCC’s ultra-high net-worth individuals.

 

Football clubs, million dollar paintings and luxury automobiles are just some of the ways ultra-high net-worth individuals (UHNWI) in the GCC are choosing to invest their wealth.

GCC investors have historically exhibited a strong propensity for luxury automobiles and collectables than the global average, perceiving it as safe asset investments and a status symbol of wealth. While current trends reveal that luxury and classic cars still dominate buying trends, there are a few new trends which are emerging among the region’s UHNWI.

Earlier this year property consultant Knight Frank released its Luxury Investment Index (KFLII), which tracks the performance of ‘10 investments of passion’ and was presented at the launch of the consultant’s Wealth Report in Abu Dhabi. Findings from the Index revealed that luxury spending trends in the region remain strong despite challenging economic conditions.

Coupled with its Investment Index, Knight Frank also released its 2016 Attitudes Survey conducted in conjunction with ultra-wealth intelligence consultancy Wealth – X. The survey revealed that commercial real estate is expected to become an established component of investment portfolios for UHNWI from the MENA region over the next decade, a shift from the previous focus on mainly residential real estate.

INVESTING IN ART

According to Dana Salbak, Head of MENA Research at Knight Frank, classic cars continued to top the league with a 17% annual growth in 2015.

“Generally automobiles appeal to a rapidly growing and youthful population, which is why it continues to be a favourite among wealthy individuals. Along with luxury collectables, such as watches, jewellery and art, it represents and illustrates status and can be easily displayed. Also, it represents safe asset investments,” says Salbak.

Gaining momentum among investors is artwork. 2015 saw contemporary and modern art performing strong in the region. Last year, world-renowned Spanish artist Pablo Picasso’s Women of Algiers was auctioned at USD 179 million to a Qatari royal, according to Salbak.

The auction set a world record for the most spent on artwork at a Christie’s auction in New York in May last year. The oil painting, considered one of Picasso’s finest, is part of a 15-work series created by the Spanish artist between 1954 and 1955.

“For anybody that wants to have a major Picasso, this is it – and USD 179m in 10 years’ time will probably look inexpensive,” says Philip Hoffman, Founder and CEO of the Fine Art Fund Group, in an interview with BBC shortly after the auction.

Last year French post-impressionist artist Paul Gauguin’s, When Will You Marry from 1892, sold at nearly USD 300 million and is believed to have been purchased by a Qatari buyer (according to third party reports), says Salbak.

Qatar has been an art-collecting nation for several years and now the country is reportedly responsible for the two most expensive art sales of all time.

Experts maintain that this reflects the trophy-hunting atmosphere dominating the global art marketplace now, as UHNWI compete for the handful of masterpieces that come up for sale in any given season and the bragging rights that accompany it.

The region has a well-established group of HNWI who have been attracted to the rise of support services for art investors such as the ‘Art Net’, a pricing tool for artwork as well investing via specialist art funds.

Salbak says that another interesting investment is football clubs for GCC investors. “While not everyone may be a fan, there is definitely money to be made from television and commercial revenues and ticket sales. The game has a wide and enduring appeal which not expected to change and so its ability to generate revenue will not either,” she says.

Popular British football club, Manchester City is currently owned by His Highness Sheikh Mansour bin Zayed al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs of Abu Dhabi.

In 2011, the Qatari Government’s investment arm – Qatar Sports Investment – announced its purchase of Paris Saint Germain.

UNWAVERING APPETITE

For Salbak it’s interesting that despite the ongoing, difficult economic conditions in emerging markets, the appetite of wealthy collectors hasn’t been affected.

“In fact overall, the value of the KFLII rose 7% in 2015. What this tells us is that during a period of economic uncertainty, many wealthy individuals look for tangible investments such as paintings or cars, which tend to appreciate in value, as opposed to luxury personal items like clothes or accessories,” she explains.

Looking at UHNWI around the world, Salbak says that the unifying trend is that luxury spending is dependent on lifestyle choices, experiences and surrounding circumstances.

“For example in Africa and Latin America, UHNWI show a strong propensity to own private jets. Poor commercial travel infrastructure within the region has, in our opinion, contributed to this demand,” she explains.

“UHNWI from Europe and the Pacific have a higher affinity with the sea as opposed to UHNWI from Asia, so we see the level of yacht ownership higher in the former,” adds Salbak.

COMMERCIAL REAL ESTATE

Historically UHNWI have been inclined to purchase residential real estate however a shift in favour of commercial real estate, as part of their investment portfolio, is becoming more common.

Knight Frank’s 2016 Attitudes Survey reveals that commercial real estate is expected to become an established component of the investment portfolio of UHNWI from the MENA region over the next decade.

“Despite the recent decline in oil prices and the slowdown in global trade and commercial volumes, UHNWIs are committed to the growth of businesses and the industrial, logistics and transport sectors over the next decade,” says Salbak.

While 82% of UHNWIs from the MENA region have invested in residential property over the past decade, only 53% are expected to allocate funds to the asset class over the next decade. “While residential property was always seen as a secure form of investment, the volatility of the asset class has made the commercial sector more appealing as its value extends beyond just the ability to generate income,” says Salbak.

Salbak says that the focus of regional UHNWI is mainly on the growth of the offices and warehousing/logistics sector, along with retail and hotels following. In terms of location, the major gateway cities of London, Paris, New York and Sydney have seen the largest share of cross-border commercial investments.

“Mainly because they offer diverse investment products and have made property more accessible to a wider range of investors through their mature rules and regulations. Also the high level of market transparency and diverse expertise across these markets enables private investors to overcome their knowledge gaps and feel comfortable trading in those locations,” she says.

In terms of non-traditional locations, “in Europe we’re seeing interest in Berlin given its young, creative business environment. Sub-Saharan Africa continues to be a region of long-term growth and opportunity particularly the fast-growing cities such as Nairobi, Lagos, Dar es Salaam.”

Experts maintain that despite current economic challenges, UHNWI still show confidence in both global and regional economies over the long term and will continue to look for direct investment opportunities that ensure accumulation of wealth and status.

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