The annual global wealth report composed by Knight Frank and Citi Private Bank shows that prime residential property is at the heart of the investment portfolios of the super rich.
The highlights of the report show that global prime property prices rose by 11 per cent during 2007. Research shows that the strongest growth was demonstrated in the emerging economies, especially China and Central and Eastern Europe.
The second area of strong growth was in the global financial centres and second home hotspots in France, Italy and the Caribbean.
The highest price growth achieved by prime residential properties were in Antigua, Caribbean (40 per cent); St Jean Cap Ferrat, France (39 per cent) and St Petersburg, Russia (38 per cent). These last two areas slowed from 2006 when they achieved 95 per cent and 75 per cent growth respectively.
Interestingly and not surprisingly, overall in 2007, capital growth in prime residential properties has been strongest in the main global financial centres and those with benign tax jurisdictions.
Five of the top 10 locations fell into this category with London outperforming all of the other centres with 29 per cent growth.
Other financial centres in the top 10 were Singapore (31 per cent), New York (25 per cent) and Dubai (24 per cent) growth. In London, properties valued over £10 million grew by 37 per cent against the average of 29 per cent.
This premium pricing is evident in other global super prime centres such as Monaco, where the average price growth in 2007 was 25 per cent, whereas properties priced at over $10 million grew by close to 30 per cent.
There is obviously a relationship between the number of high net worth individuals and prime property price performance.
The biggest high net worth population growth rates for 2007 were recorded by China (14 per cent) and India (nine per cent), while Kazakhstan, Singapore, Argentina and the United Arab Emirates all achieved eight per cent.
Also at the top end of the property market, Prince Andrew has managed to unload his former matrimonial home, Sunninghill Park, to the 29-year-old head of an energy conglomerate, who is a Kazakh tycoon.
The interesting details of the transaction were in the price achieved – £15 million compared with a guide price of £12 million. It is reported that there were no other bidders. It has also become evident that Prince Andrew has numerous business dealings in Kazakhstan, is joint Patron of the British – Kazakh Society and holidays in Kazakhstan.
I would be surprised if you found that location in the latest Kuoni brochure. Now, one has to remember that under the principal private residence rules there is no capital gains tax paid on any capital gains made.
Having said that, it is understood that the property was held by a trust and it has been purchased via an offshore company.
It would of course be a very clever way of making a payment to an associate, by over inflating the purchase price of his property.
I am sure that Her Majesty’s Revenue and Customs may well have a little look at this transaction.
While they may be collecting an extra four per cent in stamp duty, they may be missing out on a more substantial rate of either income or capital gains tax.
I have previously commented on the shift in global financial muscle from the over indebted Western economies to the east, and natural resource rich nations.
Commodity price rises have brought wealth and created a significant number of high net worth individuals in countries that benefit from a high level of natural resources including Brazil, Canada, Australia and Russia.
Clearly while the current problems in the UK domestic property market are causing much anxiety for many home owners and buyers, the rich are still getting richer.
The global wealth report predicts that over the medium and long term, super prime and prime residential property markets will outperform as wealth accumulates around the world.
The report predicts that the full impact on demand for property from the rising mass affluent population of central Eastern Europe along with China, India and South Korea and other Asian economies is yet to be seen.
“Rising affluence generates another market, second homes and holiday homes,” it says. “The boom in second home ownership over the past decade will be nothing compared with the growth we will see over the next decade.”
Clearly this end of the property market demands prime position and build quality. Given the limited availability of these types of properties and the increase in the numbers of people who can afford them, it looks like the report could well be accurate in predicting continuing positive returns in this sector.
* Trevor Law is a director with Montpelier Group (Europe) Ltd, the privately-owned independent financial advisers located at Barston near Solihull. e-mail: TILaw@montpeliergroup.com