PETALING JAYA (March 2): The global prime real estate is anticipated to grow in FY2022, according to Knight Frank’s The Wealth Report 2022 presented via a webinar on Wednesday.

The report’s objective is to provide an annual assessment of how wealth creation is shaping investment markets while highlighting the  opportunities and risks.

The panelists included Knight Frank’s head of private office Rory Penn, global head of research Liam Bailey, The Wealth Report editor and head of rural research Andrew Shirley, The Wealth Report deputy editor Flora Harley, head of commercial research William Matthews, head of international residential research Kate Everett-Allen, private office partner Sarah May-Brown and head of UK residential Tim Hyatt.

During the presentation of the report, Knight Frank deputy editor of The Wealth Report, Flora Harley, said: “The standout story really was that movement of wealth into prime residential property markets. Our prime international residential index, which benchmarks 100 markets around the world saw record performance with an 8.4% growth year-on-year on average. And that's the highest on record that we've seen since 2008.”

Knight Frank head of private office Rory Penn said: “We've seen a lot of sort of reassessment of housing need from a number of wealthy individuals as they sort of no longer tethered to the office, they can now potentially move further away. And that's had a big impact on demand. The Americas was the top performing world region, we saw on average markets there increased by nearly 13%.

“London is seeing growth, the prime market is up by 2% to 3% (depending where you are in the city); it has been a slow market over the past few years. In the last year, we're seeing positive growth that isn't rapid, but it is certainly increasing confidence in the market,” said Harley. “We've also seen renewed interest into commercial sectors that have been hit hardest by the pandemic. So be that offices, hotels, and retail,” she added.

The report also discussed the wealth risks that have cropped up amid the pandemic. Knight Frank global head of research Liam Bailey said: “You have to look at the wider picture; when you do, risks do start to emerge. Although wealth has increased vastly around the world during the pandemic, wealth inequality has also increased.”

According to the report via its attitudes survey, Knight Frank has asked ultra-high net worth individuals what they think are the biggest threats to wealth accumulation, and taxation is highlighted as one of the threats.

Knight Frank private office partner Sarah May-Brown said: “Tax and regulation are among the top threats identified. Governments have amassed huge deficits during the pandemic, that hole is going to have to be filled by something.”

The panelists covered the cooling measures and taxation in real estate. “And we're already seeing this [phenomenon] particularly in locations across Asia, but [still] aimed very much at the top of the marketplace; it is an opportunity to raise tax from wealthy purchasers and wealthy buyers. And having a side benefit of restraining growth in the marketplace,” added Penn.

Last year, taxes rose in countries like Singapore, highlighted by Harley. “We are going to see a push for greater transparency. In the EU, we have witnessed that in terms of residency and citizenship initiatives. We know that a number of policymakers are now looking closely and potentially at new ways to tap into taxing wealth to curb price inflation over the coming years.”

Inflation is another key factor, said the panelists. “We know we're moving into a higher inflation environment, where rates are going to rise. And the question on every investor's mind is how quick is that process?”

The panelists also revealed that families are diversifying portfolios from a wealth preservation perspective. “Because of the rise in inflation, we will certainly see families becoming more focused on income generating assets.”

Penn added: “What we would say is that the right type of real estate can be a very effective inflation hedge. We'd expect to see investors looking carefully to see if they can utilise real estate in their portfolios to mitigate some of these risks and [what] they perceive the ramifications of inflation. What that means for asset classes, I think that is going to be the big story of 2022.”  

In terms of outlook, the report highlights environmental, social and corporate governance (ESG) and globalisation of real estate as an asset class, over the longer term.

The panelists concurred: “As we look to the year ahead, we think 2022 is going to be a record year for cross border investment activity in real estate. For example, what we saw last year was record levels going into the port of Los Angeles, record shipping levels going through the Suez Canal, despite the fact that it was blocked for six days at the beginning of 2021. Globalisation is on the rise.”

“We're seeing tokenisation now coming into the real estate sphere. In recent weeks, there has been a large institutional investor potentially looking at actually tokenising real estate now. So we could see [this] opening up property investment to a much bigger audience.

“Capital targeting property is something that we're seeing a lot more; the ultra-high net worth individuals...18% now earn a cryptocurrency or crypto token of some sort, according to our survey, 11% [via] NFT. There's a huge amount of wealth now going into this space but there's a lot more room to run,” said the panelists.

For FY2022, the panelists foresee the prices to still continue to rise across most markets. “The housing boom we've seen to date that will endure at the top of the rankings in our forecasts are Dubai, Miami and Zurich. We expect all three markets to see growth of around 10% to 12% in 2022, to the extent to which the normal rules and laws around housing market economics have been totally upended,” said Harley.