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Knight Frank, a global real estate consultancy firm, recently released a report titled "The Wealth Report 2023", its yearly report that examines patterns in high-end real estate markets, the distribution of wealth worldwide, and expenditure on luxury goods. The report analyzed the state of the world's ultra-high-net-worth individuals (UHNWIs) and their preferences for luxury residential properties. According to the report, Singapore has emerged as one of the top cities for ultra-prime residential sales, along with other global cities such as Hong Kong, New York, and London.
Singapore's economic fundamentals have been strong for many years, with a business-friendly environment, stable political climate, and efficient infrastructure. The country has consistently ranked high in global indices for competitiveness, ease of doing business, and quality of life. These factors have attracted a large number of foreign investors and UHNWIs to Singapore, who see the country as a safe haven for their investments.
According to the report, the increase in prime home prices in Singapore in 2022 was comparatively modest compared to other cities. The report's Prime International Residential Index (PIRI 100), which monitors 100 global markets, ranked Singapore 58th, with prime home prices increasing by 3.9% last year. The report highlighted that prime prices continued to trail behind the overall growth of 8.6% for all Singapore private residential properties and the average increase of 5.2% across residential cities in the PIRI 100.
Knight Frank Singapore’s head of research, Leonard Tay, attributed the more moderate increase in Singapore's prime home prices to the government's cooling measures aimed at constraining prices, as well as travel restrictions that were still in place for places like China and Hong Kong last year.
Last year, the majority of ultra-high-net-worth individuals (UHNWIs) experienced a decline in their wealth due to various economic, energy, and geopolitical shocks that impacted global markets. The Wealth Report estimated that UHNWI wealth dropped by 10% in US dollar terms. Europe saw the largest decline in wealth at 17%, followed by Australasia (11%) and the Americas (10%). However, Africa and Asia fared better with the smallest declines at 5% and 7%, respectively.
Despite the challenging year, the 2023 Attitudes Survey from The Wealth Report paints a more optimistic outlook, based on the opinions of 500 private bankers, wealth advisers, family offices, and other intermediaries managing over US$2.5 trillion of wealth for UHNWI clients. Of the respondents, 69% anticipate an increase in their clients' wealth this year, up from 40% in 2022.
In the Asia-Pacific (APAC) region, 45% of UHNWIs are expected to experience an increase in wealth in 2023 compared to 25% the previous year, as noted by Christine Li, head of research at Knight Frank Asia-Pacific. The report cites asset repricing, perceived value opportunities, and an expected economic rebound in the APAC region as drivers of this optimism.
Capital growth is a significant goal among the wealthy in APAC, with many looking to real estate as a primary opportunity. This is promising for prime residential markets in the area, as UHNWIs continue to have a strong appetite for purchasing homes. "The return of Chinese buyers will likely boost transaction volumes for residential properties, particularly in the prime segments of the region’s gateway cities," adds Li.
The Attitudes Survey reveals that 16% of UHNWIs in APAC plan to buy a residence in 2023, with primary and secondary homes comprising 35% of the total wealth of Apac UHNWIs. This indicates that homes remain the cornerstone of private wealth portfolios in the region.
It was noted that private wealth was the driving force behind global commercial real estate investments in 2022. The report shows that private investors, including individuals, family offices, and privately-held companies, accounted for 41% of the US$1.12 trillion commercial property investments made last year, surpassing institutional investments which made up 39% or US$440 billion.
In APAC, private investors contributed US$1.53 billion to commercial real estate investments last year, reflecting a 30% year-on-year increase. This is noteworthy given the overall decline in APAC investment volumes, which fell 21.3% amidst rising interest rates and recession concerns. Nonetheless, the wealthy are expected to continue driving activity in the global commercial real estate market, given the ongoing repricing of assets globally.
The HNW Pulse Survey conducted by the consultancy, which surveyed 500 high-net-worth individuals (HNWIs) worldwide, found that 19% of respondents plan to invest directly in commercial property this year, while 13% intend to invest indirectly through REITs or debt funding. APAC investors in particular appear to be optimistic, with 32% of them planning to increase their allocations to commercial property, compared to a global average of 28%.
Within the region, Singapore remains a prime investment destination. According to Nicholas Keong, Knight Frank Singapore’s head of private office, the country's highly regulated and transparent market is attractive to UHNWIs seeking opportunities for private wealth investment aimed at capital preservation and appreciation over the mid to long term.
The rise in ultra-prime residential sales in Singapore has significant implications for the country's property market. On one hand, it is a positive development for developers and investors, who stand to gain from the surge in demand for luxury properties. It also reinforces Singapore's position as a global hub for business and investment.
However, the rise in ultra-prime residential sales could also exacerbate the wealth gap in Singapore. While the city-state has one of the highest levels of income equality in the world, the rise in luxury property prices could lead to a widening gap between the ultra-wealthy and the rest of the population.
Singapore's emergence as one of the top cities for ultra-prime residential sales is a testament to the country's strong economic fundamentals and attractive investment climate. While the rise in demand for luxury properties has positive implications for developers and investors, it also raises concerns about the potential impact on the wealth gap in Singapore.