The number of rich not only increased last year, the rich got richer. The good news for the real estate industry is that the wealthy shifted a substantially higher percentage of their investment portfolios into real estate in 2006.
World Wealth Report
According to the just released World Wealth Report, an annual study prepared by Merrill Lynch and CapGemini, the number of financial millionaires jumped to 9.5 million worldwide. That’s up 8.3% over last year. Of the total, 3.2 million are in North America.
The report defines financial millionaires – also referred to as high net worth individuals (HNWI) -- as those with a million dollars or more in investable assets, not including their primary residences. Total wealth of the group reached $37.2 trillion in US dollars.
Money into Real Estate
Last year, the global wealthy pulled substantial dollars out of “alternative investments” such as hedge funds, commodities, foreign currencies and venture capital funds. Instead, they placed a whopping 24% of their total investments into real estate, an increase of 50% over 2005.
While 51% of the HNWI’s overall real estate investments were in commercial real estate and real estate investment trusts, a whopping 49% of the total real estate investment went into vacation and second home properties, generally not financed with mortgages. Statistics for North American millionaires are similar, with 41% of the investment in real estate invested in residential properties.
Desire for Multiple Houses
The wealthy are buying multiple homes. North American vacation and second home sales are out performing the market overall and the number of trophy properties offered in the double and triple digit millions continues to grow both in the US and abroad.
World Record Sale
The recent record sale of a 20,000 square foot London penthouse overlooking Hyde Park for about $200 million to Sheikh Hamad of Qatar (article in The Times UK) and the sale of a custom home lot in New York’s Hamptons for $103 million are evidence that the super rich see trophy homes as smart investments that also make a statement and enhance one’s lifestyle.
Wealth Growing Globally
Growing wealth is a global phenomenon. The wealthy are citizens of the world, and the demand for über homes from Dubai to London and from Moscow to New York City is high.
According to the World Wealth Report, HNWIs are well-informed about present and approaching economic conditions and quickly reallocate their portfolios to capitalize on market trends. This year, globally, HNWIs liquidated some of their alternative investments to realize significant returns from real estate investments.
Great news for real estate professionals who work in the upper tier.
