Real Estate Investor Magazine South Africa November 2018 | Page 58

UK WEALTH REPORT
fallen over the review period – according to our in-house
indices, prime prices there declined from around US$48,000
per square meter at the end of 2007 to around US$35,000 per
square meter at the end of 2017.
It is important to note that our indices work off a different
basis from most other residential indices. Our indices track
the square meter prices achieved in selected prime 200 to 400
square meter apartments in each area, which we believe is the
best way to check for price movements. We focus on the most
exclusive apartment complexes in each area (i.e. Prime). So for
London, we focus on the best apartments in Knightsbridge
and Belgravia.
The four main ways used to check price growth in an area
include:
• Transactional indices - these are normally compiled by
major banks. They are based on the total/average value of
purchases that go through the bank during a period. In our
view, these are the least accurate - they are often restated
heavily over time.
• Average sales price indices - also normally compiled by
major banks. These indices can be distorted by big sales (i.e.
the sale of a mansion) during a particular month/quarter.
• Repeat sales indices - this index is very accurate but
difficult to compile over a short period of time or in a small
area as it requires multiples sales on the same property.
• Square meter price growth - we use this one. By focusing
on sales in certain apartment complexes one can get an
idea on how square meter prices are changing. This
does not require a large sample. Normally for an area
such as Knightsbridge in London, tracking 3 to 4 prime
apartment blocks can give one a very good indication of
price movements. The only limitation of these indices is
that they only work well on apartments as houses normally
have gardens and additional land which is difficult to value
on a square meter basis.
Hotel residences
Many of the most expensive apartments in London are hotel
residences. Originally a New York phenomenon, the hotel
residence trend has started to catch on in other major cities
and holiday hotspots around the world. ‘Hotel residences’ refer
to apartments/villas in existing hotels which can be purchased.
They essentially allow owners to live in a hotel permanently
and enjoy the same services as normal guests do (i.e. room
service, dining, cleaning etc.).
Hotel residences are often difficult to identify such as ‘One
Hyde Park’ in London - the apartments there are essentially
hotel residences serviced by the Mandarin Oriental next door.
Reasons for their rising appeal include:
• Appeal to those that travel a lot - facilities are maintained
whether one is there or not.
• Access to services – room service, cleaning.
• Access to facilities – pool, spa, entertainment, dining, bar.
• Good security and big reception area for meetings. Banyan
Tree, the St Regis, the Mandarin Oriental, the Four
Seasons, the Conrad Hilton and the Ritz Carlton are the
main providers of hotel residences worldwide.
UK examples:
• Mandarin Oriental Residences (One Hyde Park) -
London, UK.
• Ten Trinity Square - London, UK.
Examples in others parts of the world:
•  Baccarat Residences - New York, USA.
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NOVEMBER/DECEMBER 2018 SA Real Estate Investor Magazine
•  Palazzo Tornabuon - Florence, Italy.
•  The Plaza Pied-a-terre - New York, USA.
•  St Regis Residences - New York, USA.
•  Four Seasons Private Residences - Seychelles.
Wealth Management
At the end of 2017, UK based wealth managers together
managed around US$2.2 trillion in HNWI funds. This
includes around US$850 billion that is managed by family
offices. Notable players in this market include:
• Barclays Wealth.
• Coutts.
• HSBC.
• Investec.
• St James›s Place.
• Brewin Dolphin.
• Rathbones.
• Rothschild & Co.
• C. Hoare & Co.
• Stonehage Fleming.
• SandAire.
• Smith & Williamson.
HNWI Migration trends
Over the past 30 years, the United Kingdom has been one of
the biggest recipients of migrating HNWIs. We estimate that
over 85,000 HNWIs have moved to the UK since 1990.
However, this trend changed in 2017 when the country
experienced its first major HNWI net outflow for a single year.
Although around 1,000 HNWIs came into the UK during the
year, this was more than cancelled out by a bigger outflow of
around 5,000 HNWIs, resulting in a net outflow of around 4,000
HNWIs for the year. Note: figures rounded to nearest 1,000.
Possible reasons for the UK’s poor performance in 2017:
• New taxes on non-doms and foreigners with homes in
the UK made it more expensive and more complicated for
migrating HNWIs to buy homes in the UK.
• The UK’s traditionally high inheritance taxes made
the likes of Australia and the US more appealing to
migrating HNWIs (post Brexit). Notably, Australia has
no inheritance taxes, whilst in the US the inheritance tax
threshold is much higher than in the UK. Both Australia
and the US experienced large HNWI net inflows in 2017.
• Rising crime levels and rising religious tensions (especially
in London). Crime deters HNWIs from staying in a
country.
Concerns for London
London was obviously a hotspot for migrating HNWIs for
many years. However, this trend appears to have changed over
the past couple years as migrating HNWIs now prefer moving
to other “international cities” such as Sydney, Melbourne, New
York, Geneva and San Francisco. “International cities” refer to
first world cities which attract business people from all over
the world. They tend to have English as their main language.
Notably, over the past few years, many wealthy Londoners
have moved out of the city to nearby small affluent commuter
towns such as Bray, Taplow and Marlow. This is a notable
trend that is gaining momentum. A large number of wealthy
Londoners have also left the UK altogether – many of these
individuals have gone to the US and Australia.