The 2015 edition of the Knight Frank Wealth Report focuses on the attitudes of the wealthy, global distribution, the preferred global cities Ultra High Net-Worth Individuals (UHNWI) chose to invest and reside in, and current luxury spending trends. Our focus is wealth within the African market.
The total amount of wealth held by Africa’ UHNWI’s in 2014 was $0.2trillion, and based on this year survey, 30% of the respondents surveyed were expecting their clients to spend more on luxury good this year, compared with 2014, with UHNWI’s from Africa enjoying spending their wealth on luxury the most at 39%. Respondents saw an 89% increase of wealth of their African clients in 2014.
Residential property is still the most popular sector to invest in, with 81% of UHNWI said to be more interested in this sector, preferring to invest directly in property, as opposed to using fund vehicles. Equities are suggested to the second most popular investment class in 2015, with a growing appetite for riskier investments, the report suggests cash, fixed income bonds, and gold and other precious metals will see a decline in demand. The report also highlighted greater focus on “Investments of passion” 61% of respondents surveyed said that there was greater focus on investments such as classic cars, art, and wine, with art being the luxury asset where most interest is growing, followed by watches, wine, and classic cars. In Africa and Asia there was a noticeable interest in investments passions of 14% and 8% respectively. Personal pleasurewas noted as still being the main motivation for the acquisition of collectible assets.
New buyers will help to boost demand in both establish and emerging markets, the MINT (Mexico, Indonesia, Nigeria and Turkey) economies will be amongst the largest suppliers of UHNWI’s interested in luxury international property. Nigerian buyers will still from a strong part of the market for property in London and New York, with the current view that there will also be an increase in investment in property on the continent, with investments in countries such as South Africa and Mauritius.
Wealthy Chinese investors are currently the biggest investors on the continent, with a large number of investments being made in South Africa. The country has seen a strong preference from Chinese investors for industrial property, and trophy purchases such as a prominent Sandton sky scraper, and several wine farms in the Western Cape.
Agriculture was highlighted as a sector to watch, demographics suggest that the world’s population is set to reach 9 billion people by 2050, investing in farmland is seen as an effective way of buying in to this demand, based on the basic concept that everybody needs to eat. The report suggests that investing in agriculture provides the opportunity to substantially boost capital values, particularly in areas with a higher-risk profile.
Monaco is set to double its population of UHNWI’s over the next 10 years; however this rate of growth will be outstripped by emerging market economies such as Vietnam, Kazakhstan, and the Ivory Coast. Nigeria is set to see growth rate in UHNWI of 90%, however the top position for growth within Africa goes to the Ivory Coast, who are forecast to see a growth rate of 119%.
“Africa has the highest potential for growth of any region at the moment “Deon De Klerk
International companies are now beginning to realise that they cannot run the their business on the entire African continent from Johannesburg, this has created a vacuum which Nairobi is currently filling, establishing the city as one of Africa’s leading hubs. Local developers are investing in Grade A quality office space to attract top quality tenants to the market. Kenya is also experiencing growth due to newly discovered oil and gas deposits, GDP is rising at 5.5% each year, and the growing middle class is developing a taste for western goods and shopping experiences. The country is seeing international retailers commit to the region for the first time.
Significance of the Growing Middle Class
Between 2000 and 2010 Africa’ middle class grew from 29% to 34%, the current growth in Africa’s middle class is not just an indication of an increase in living standards, but a catalyst for driving consumer spending. Disposable income will allow the purchase of goods and services, pumping money back into domestic and international economies.
Private consumption amongst the middle class in emerging market economies is growing at around three times the rate of advanced economies. With some of the fastest rate of growth in Africa and Latin America, who are experiencing growth at 53% and 46%. Increased middle class spending attracts investment, and can have a direct impact on the potential creation of wealth, spurring innovation creating entrepreneurial UHNWI who seek to capitalise on the consumer’s appetite for good and services.
clients from emerging market such as Russia and Nigeria are largely represented in UK preparatory schools, and are realising the benefits of earlier relocation to the UK for the benefit of their children’s education. Today’s UK Preparatory schools are now insistent that overseas applicants complete at least 2 years in a UK-based school. William Petty from MacFarlane education noted that the current trends suggest a renewed interest in boarding schools, and London day schools from most of their international clients.
Key Risks for 2015
Head of International private clients at Standard Bank, Deon de Klerk noted the risk of Political upheaval, and the impact this can have from a geopolitical perspective. There is a risk that any political upheaval could impact investment within particular countries, and could also destabilise specific regions. The varied stages of development where African countries are concerned also present a risk to the continent . There is currently an onus on stable countries and the larger economies such as Nigeria, Kenya, South Africa and Angola to remain on track.
The Chief Economist, Chris Williamson at Markit noted one of the biggest risk at present being the disconnect between the pricing of bonds and commodities on the one hand, and Equities on the other. Chris Williamson highlighted the risk that Bond and Commodity prices are pricing in weak global demand, yet the recent stock market rallies appear to be factoring in the expectations of future profits based upon a rising demand
The impact of Africa’s young population was also noted by De Klerk, stating that investments in Africa must be viewed over as medium or long-term. The continent is one of the few regions where there is huge potential for growth based on a growing young population which will as a result fuel further demand, driving economic activity and wealth creation for the continent. The focus on entrepreneurs has also resulted in growth in the number of HNWI. Africa accounts for 15% of the world’s population, but only provides 4% of the global output; however De Klerk perceives this to offer great opportunity over the medium and long-term.
Important Cities for Africa’s UHNWI’s
The top 10 global cities for UHNWI’s, in order of importance are:
- New York
- Hong Kong
Source: Knight Frank Global Cities Survey.
The only African cities to make the overall list were Johannesburg and Cape Town, which came in at numbers 28 and 36 respectively.
Based on city level population for 2014, the city with the most UHNWI’s in Africa was Johannesburg. The report listed the top cities in which UHNWI generally reside in on the African continent?
- Johannesburg (South Africa)
- Cairo (Egypt)
- Lagos (Nigeria)
- Cape Town (South Africa)
- Dar es Salaam (Tanzania).
- Abuja (Nigeria)
- Addis Ababa (Ethiopia)
- Marrakesh (Morocco)
- Kano (Nigeria).
Cape Town features in the Five Global Prime Residential Hotspots, with Main Road, Green Point featuring as a local area which has received huge investment in development parks, roads and transport systems.
The area has seen restaurateurs improve the areas lifestyle offerings, world-class sports facilities, and access to the waterfront, the city centre and views of table mountain, main road has been billed as the street to watch for 2015.
The five global prime residential hotspots are:
- London – St John Street Clarkenwell
- New York – Wall Street Manhattan
- Cape Town – Main Road, Green Point
- Dubai – Business Bay
- Hong Kong – Sai Ying Pun.
Africa’s Fastest Growing Economy
According to the report, Africa’s fastest growing economy is Ethiopia. Addis Ababa is presented as a city for the future. The city is predicted to have a 3.8% annual population growth rate in the capital, and predicted urban migration set to increase the population in the capital to over 8.1m by 2040.
The number of HNWI’s has almost doubled since 2007 to just over 1,300, with an expected increase to 2,600 by 2014, showing one of the strongest forecast growth rates for the next decade. However the city is experience some strain with public investment in infrastructure dominating GDP growth.
Addis Ababa is a city of political importance where the continent is concerned, and is currently the headquarters for the African Union, and the United Nations Economic Commission for Africa, and various continental and international organisations, awarding it the title of the political capital of Africa.
Private Jet Routes
Unsurprisingly Nigeria has become a major hub for private jets, Lagos is now in the list of top 10 fastest growing global routes. The data provided by NetJets identified clear synergies between established market routes and investment flows. No African countries featured in the top 10 routes, with the top route for 2013 being Moscow to Nice/Cote d’Azur, however where the fastest growing routes were concerned Lagos to London came in at number 8.