Last week the Real Deal reported that ultra-high-net worth individuals saw their fortunes decline in the previous 18 months by a few percentage points. At the same time, NYC saw a rise in its share of these residents (defined as $30 million plus fortunes). Gathering accurate information in this segment of the population is notoriously challenging, because most statistical surveys fail to capture this small group in their sampling. Nevertheless, volatility in the stock market since the start of the US-China trade conflict means this is likely to be the case, as ultra-high-net worth individuals typically hold a large share of their wealth in capital markets. [1]
A bit counterintuitively, however, a dip in the net worth of these individuals may lead to counter-cyclical spending in New York’s real estate market. The market has been softening since China introduced strict capital controls a couple of years ago (see our September 3 blog for this story), although German financial giant Allianz has picked up some of the slack in the last year. How could declining fortunes lead to more real estate investment? The Real Deal points out that ultra-high net-worth individuals may cut back on other forms of luxury spending like boats, private jets, and luxury consumer goods before doing the same in real estate—or even shift some of the former into the latter. That said, rising economic uncertainty as well as pinched wallets appear to be leading more directly to caution—with investors trying to stay as liquid as possible to see which way the market turns before committing to real estate. This is certainly the case in another global city, Hong Kong, where the city-state’s biggest political crisis since the handover from the UK to China has stalled investment. On the other hand, real estate investors remain tempted by London due to the weakness of sterling, which is near 40-year lows—despite the turmoil over Brexit. Nevertheless, New York City remains a fairly attractive proposition for wealthy and foreign investors scanning the small stable of global cities for property acquisitions. [2]
[1] Hudson, E. (September 2019) Millionaires’ fortunes are shrinking. Here’s what that means for real estate from The Real Deal https://therealdeal.com/national/2019/09/26/millionaires-are-seeing-their-fortunes-shrink-heres-what-the-means-for-real-estate/ accessed September 30 2019
[2] Sun, K. (September 2019) NYC’s New Global Investment Fix from The Real Deal https://therealdeal.com/issues_articles/nycs-new-global-investment-fix/ accessed September 30 2019