Real wealth in real estate

Raj Kumar Ray Posted online: Monday, Jan 20, 2014 at 0000 hrs
The global economy is still on a recovery mode but that has not stopped the world’s uber-rich’s wealth from growing. Private wealth is increasingly shaping the world’s real estate markets, with private equity in major property deals nearly trebling since 2009. Real estate now accounts for around a fifth of the invested wealth of the nearly 200,000 ultra-high net worth individuals (UHNWIs) in the world, according to a survey by global real estate advisor Savills and Wealth-X.

The total value of the world’s real estate is now around $180 trillion, of which 72% is owner occupied residential property. Of the $70 trillion that is ‘investable’, and therefore traded regularly—including $20 trillion of commercial property—over half is being bought by private individuals, companies and organisations.

The Savills-Wealth-X report says $5.3 trillion of the world’s total real estate value is owned by UHNWIs who comprise a small fraction (0.003%) of world’s population. Wealth-X forecasts the UHNW population to grow by 22% by 2018 and its combined wealth—currently $27.8 trillion—is expected to total over $36 trillion by 2018.

What’s interesting, European and Asian UHNWIs hold by far the biggest share of all privately-owned real estate, together accounting for almost 80% by value totalling $4.2 trillion. European real estate markets are the largest, having attracted the most inward investment globally , relative to size, with London being the standout global destination for private inward real estate investment.

Apart from the investment trend, what the survey also reveals is a wide disparity in income distribution and investment in real estate. While North America accounts for 35% of world private wealth, the region accounts for just 7% of wealth held in real estate. In contrast, the Middle East accounts for just 3% of global private wealth but holds 26% of real estate wealth. One reason for this could be that the uber-rich in North America have invested their wealth in a diverse portfolio predominantly in financial assets whereas the sheikhs of the Middle East have invested more on real estate than in financial assets. This should be a key take away for policymakers in India, which is witnessing a decline in the ratio of financial-savings-to-GDP ratio in recent years and higher exposure in gold and real estate.