22 Jan 2013
In 2011, real estate was the largest asset class for High Net Worth Individuals (HNWIs) in South Africa (27.8 percent of total HNWI assets), followed by equities (25.0 percent), cash (13.8 percent), business interests (12.8 percent), fixed income (12.8 percent) and alternatives (7.7 percent).
Between the periods 2007 to 2011, real estate holdings growth of these individuals was 23 percent and this figure is set to reach 39 percent in 2011 to 2016.
This is according to WealthInsight a firm which provides detailed data and insightful analysis on the world’s HNWIs and wealth sector.
The report, South Africa – The Future of HNWIs to 2016: The Rise of African Wealth notes that growth in the wealth of HNWIs is linked to a number of factors including the country’s GDP, the local property market and the local equity market.
According to the report, the increase in South African HNWI wealth was heavily linked to the rise in the local residential real estate market.
WealthInsight classifies some of these individuals as being the ultra high net worth individuals (UHNWIs), a wealth group which comprises billionaire, centimillionaire and affluent millionaire wealth bands.
These individuals have wealth of US$30 million or more, including equities, bonds, cash and deposits, fixed-income products, real estate, alternative assets and business interests.
South Africa’s residential property market performed well over the review period with house prices rising by 17.1 percent in US dollar terms from 2007 to 2011.
According to the report, the high growth in local real estate values over the review period (2007-2011) is the result of South Africa’s quickly growing middle class, which is seen to be the primary driver of the growth in local property prices.
HNWIs in South Africa increased their property holdings over the review period, from 26.1 percent of total assets in 2007 to 27.8 percent in 2011.
Most of this increase was in the local residential property market – allocations of South African HNWIs to local residential real estate rose from 18.2 percent of total assets in 2007 to 19.2 percent in 2011, according to the report.
Local commercial property holdings also increased, from 6.4 percent of total HNWI assets in 2007 to 7.3 percent of total HNWI assets in 2011.
Over the forecast period, WealthInsight expects a movement away from local real estate as HNWIs in South Africa move into more aggressive asset classes such as equities.
Wealthy home locations
In South Africa, Johannesburg is home to the largest portion of UHNWIs (48 percent or 261 UHNWIs) and Sandhurst is the top suburb has the highest number (36) of the wealthy individuals followed by Bryanston (31), Hyde Park (26), Westcliff (20), Houghton (15), Parktown (15), Dainfern (10), Atholl (5) and other (103).
Cape Town has 103 UHNWIs and these are found in central Cape Town including City Bowl, Greenpoint and Seapoint (17), Camps Bay (13), Clifton (12), Bishopscourt (10), Constantia and Tokai including Steenberg and West Lake (9), Bantry Bay (7), Fresnaye (7), Llandudno (4) and other (24).
According to WealthInsight research, Camps Bay, in second place, is home to the largest number of South African homes worth over R20 million (US$2.5 million) while Clifton, in third place has homes worth over R50 million (US$6 million).
Clifton is also the most expensive residential area in the country (per square metre).
Clifton and Bantry Bay in particular are hotspots for wealthy foreign billionaires and centimillionaires who own some of the largest properties in these areas.
Centimillionaires are those HNWIs with wealth of between US$100 million and less than US$1 billion, including equities, bonds, cash and deposits, fixed-income products, real estate, alternative assets and business interests.
The report notes that Durban was the top performing city for UHNWIs over the review period (2007-2016) with UHNWIs volume growth of 32 percent
Andrew Amoils WealthInsight senior analyst and head of reports team says Umhlanga started as a holiday home destination for wealthy individuals from Johannesburg but has since become the home of choice for the largest percentage of Durban’s UHNWIs.
This has been aided by the construction of Gateway Shopping Centre in 2001, one of the largest and most luxurious shopping malls n the country, the degeneration of central Durban over the past two decades, which has incentivised many Durban HNWIs to move to Umhlanga and several companies setting up offices in Umhlanga (around the shopping centre) over the past decade.
Amoils points out that smaller cities in South Africa also have a significant number of UHNWIs, many who have chosen to retire in those locations.
A large number of HNWIs and UHNWIs from Cape Town and Johannesburg have second homes in these locations making them a hub for luxury consumers, particularly in the summer months between December and February.
Despite their large populations and strong local property market returns over the review period, Port Elizabeth and East London have insignificant numbers of UHNWIs, according to the report.
Second homes market
Foreign buyers made up 4 percent of total local residential property buyers in 2011, up from 2.5 percent in 2010.
For many luxury second home buyers, the Garden Route (between Cape Town and Plettenberg Bay) has become the major destination over the past decade.
These top-end buyers generally come from abroad or from Johannesburg and Cape Town with top five locations including Knysna, Plettenberg Bay, Hermanus, Stellenbosch and Umhlanga, says Amoils.
Foreign property ownership
Meanwhile, the share of assets South Africa’s HNWIs allocate to foreign property decreased from 1.5 percent of total assets in 2007 to 1.3 percent in 2011 as foreign property indices performed relatively poorly.
“Our research shows that 21 percent of South African HNWIs have second homes abroad as of year-end 2011, which is below the global HNWI average,” he says.
This reflects the impact of exchange controls which make it difficult for South Africans to move money out of the country.
A large proportion of the HNWIs with homes abroad are individuals who emigrated during the 1990s but have since returned, adds Amoils. – Denise Mhlanga
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