Keeping family wealth safe still the main concern for the ultra-wealthy

Galetti Knight Frank April 1, 2016

The world of the wealthy is changing: women are becoming more active in managing family wealth, children are encouraged to get involved in family businesses at an earlier age, and it is more likely that family wealth created by the first generation will be lost or dissipated by the second generation. These are some of the key findings of the 2016 Knight Frank Wealth Report, launched in South Africa in March in partnership with Standard Bank Wealth and Investment.

These findings, which reflect a decade of research, reveal that fundamental concerns by ultra-high-net-worth individuals (UHNWI) about preserving generational wealth have become more pressing than ever.

“The Wealth Report provides a fascinating and sometimes surprising insight into the patterns of luxury ownership around the world,” says Tony Galetti, Joint CEO of Galetti Knight Frank. He further adds that “around the world, worries about this loss of wealth between generations are most likely to cause sleepless nights for UHNWIs. Fifty-two percent of respondents said they did not feel that their children would be encouraged to make their own wealth. Almost half added that their children would not know how to handle the investments.”

“Privacy, having the time to spend with family and friends and having one of a kind experiences are highly valued commodities by the world’s ultra-wealthy. Owning asset classes such as yachts offers access to all of this. We already see in our Luxury Spending Index, the high proportion of yacht ownership in the Pacific region,” says Andrew Shirley, Editor of The Wealth Report.

Deon De Klerk, Head of Africa and International for Standard Bank Wealth and Investment, says what has changed over the last decade is that it is now the second generation, rather than the third, which is likely to lose a family’s hard-earned wealth.

“Although the younger generation are being encouraged to become involved in the family business at an earlier age than ever before, there is no certainty that this strategy will succeed within UHNW families,” says Mr De Klerk. Pointing out that research shows that about 66% of children are not inspired to join the family business he notes: “most prefer to pursue their own entrepreneurial ambitions or follow professional careers.”

“The Wealth and Investment Leadership Academies were introduced to address this specific concern from our clients. The Junior Leaders (10-12), Young Leaders (13-17) and Future Leaders (18-24) and Woman’s Wealth Academies are aimed at equipping families with the financial skills to ensure the successful management and transfer of wealth from generation to generation. These Academies take place throughout South Africa and in London to cater to our clients in Kenya and Nigeria,” says De Klerk.

Property still an attractive investment

Across Africa, the majority of investors actively seek international diversification, with a strong emphasis on the acquisition of property.

The results of the Knight Frank Prime International Residential Index (PIRI) showed that the value of the world’s leading prime residential market prices rose by an average 1.8% during 2015, with Vancouver in Canada leading the rankings by a significant margin. Prices in the city accelerated by nearly 25% during 2015.

Factors contributing to Vancouver’s performance were a lack of supply and foreign demand, spurred by the weaker Canadian dollar. A look at Africa on the PIRI ‘Top 100’ showed that:

  • Cape Town occupied the 13th position with an annual increase of 6.9%.
  • Johannesburg came in at the 26th spot with an annual increase of 4.0%.
  • Nairobi occupied the 33rd position, recording growth of 2.9%
  • Lagos occupied the last spot, coming in 100th, with property prices dropping by 20%.

 

The value offered to international buyers in Cape Town, the highest-ranked African city on the ‘Top 100’, can be seen by comparing costs with Monaco which, for the ninth consecutive year, was named as the world’s most expensive city in which to buy luxury residential property.

In Monaco, US $1m will buy just 17 square metres of accommodation. Hong Kong and London occupy second and third place offering 20 and 22 square metres respectively for US $1m. In Cape Town, however, that $1m will buy 255 square metres.

There are now more than 13 million millionaires across the globe (2007: 8.7 million). The most significant growth in the number of UHNWIs in Africa during the past decade was recorded in Angola, where numbers grew by 318%.

During the next 10 years, Mozambique is expected to take the African honours and record growth of at least 129% in its population of UHNWIs.

Luxury spending

The report indicates that the UHNWIs in Africa and Latin America show a much stronger propensity for private jet ownership than the global average. Poor commercial travel infrastructure within the regions combined with significant travel distances between business hubs on each continent seems to have contributed to this high demand.

The report highlights that within Africa the number of UHNWIs with a luxury cars is 1.55x the global average. Although wealth in Africa is extremely concentrated in certain countries, there is a growing potential for luxury brands including high-end auto marques.

It is highlighted that African parents, much more than other continents, over the past ten years have sent their children overseas for their education purporting that it is for better education and to broaden their perspective.

Attractive opportunities in Africa

The report says although most markets, with the exception of South Africa, remain small by international standards, modern property development has gathered pace and the stock of investment-grade commercial property has increased.

“Large, fast-growing cities, such as Nairobi, Lagos, Dar es Salaam and Luanda will continue to offer the clearest investment opportunities. The growth of Africa’s consumer class will create opportunities for further development in the retail sector,” says Mr Shirley.

“The logistics sector should also emerge in importance, particularly in key gateway locations such as Lusaka, Zambia.”

To download the Wealth Report 2016, visit www.knightfrank.com/wealthreport

Galetti Knight Frank

Marketing Manager at Galetti Knight Frank

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