KUALA LUMPUR: Wealth accumulation is on the rise once again, driven by a shift in interest rate expectations and bolstered by the resilient performance of the US economy, along with a swift rebound in equity markets.
Knight Frank Research anticipates a 28.1 per cent increase in the number of affluent individuals globally over the five-year period leading up to 2028.
This projection, while positive, signifies a growth rate notably slower than the 44 per cent surge witnessed in the preceding five years until 2023.
The Wealth Report 2024, Knight Frank's authoritative publication now in its 18th edition, suggests that the global economy may face the impact of heightened inflation in the medium term, potentially resulting in a reduced growth trajectory compared to recent historical trends.
According to the report, Asia is expected to exhibit robust performance, with notable growth anticipated in India (50 per cent), mainland China (47 per cent), Malaysia (35 per cent), and Indonesia (34 per cent).
Last year's report highlighted the repercussions of rising interest rates on wealth portfolios, noting a 10 percent decline in the total wealth held by ultra-high-net-worth individuals (UHNWI), defined as individuals with a net worth of US$30 million or more, amidst energy, economic, and geopolitical uncertainties.
"This year, we confirm a rise in the number of UHNWIs globally, led by growth in the US and the Middle East, and continued demand from these investors for real estate, with around a fifth looking to purchase residential property this year and the same proportion looking at commercial opportunities.
"Despite these pressures, we emphasised our belief that investors should focus on the opportunities ahead. Those who invested saw healthy returns," said Liam Bailey, Knight Frank's global head of research and editor of The Wealth Report.
Bailey emphasised the continued significance of property investments across various wealth segments, including high-net-worth individuals (HNWIs), defined as those with a net worth of US$1 million or more.
This year, projections indicate that 22 per cent of UHNWIs intend to invest in real estate acquisitions, whereas only 19 per cent of HNWIs are likely to pursue similar endeavours.
Regarding commercial real estate, 19 per cent of UHNWIs are contemplating investments in this sector, compared to 7.0 percent of HNWIs expressing similar interest.
Bailey highlighted not only the redistribution of wealth across global regions but also generational shifts occurring within affluent demographics.
Over the next two decades, a transition of wealth and assets is anticipated as the silent generation and baby boomers pass the baton to younger generations.
According to Knight Frank's Attitudes Survey, 71 per cent of UHNWIs worldwide foresee an increase in their wealth this year. Conversely, the Next Gen Survey for HNWIs revealed a more cautious estimate, with 65 per cent expecting growth.
Analysis of the data by age revealed a distinct trend: younger affluent cohorts exhibit greater confidence in the economic landscape compared to their older counterparts.
Only 52 per cent of HNWI baby boomers anticipate wealth growth in the next 12 months, contrasting with 75 per cent of Gen Z individuals, among whom 43 per cent anticipate substantial growth.
"Male HNWIs express greater confidence than women. This is particularly pronounced among male millennials, with 75 per cent expecting their wealth to grow, compared with 64 per cent of women.
"However, for Gen Z, these expectations are entirely reversed, with a remarkable 81 per cent of women in this group expecting growth. Half expect significant growth," he said.
Bailey outlined five major themes that will influence real estate investing in the current year.
Firstly, global economic growth is anticipated to decelerate, although geopolitical factors will lend support to crucial sectors. Additionally, while interest rates are expected to decrease, the extent of the reduction may fall short of investors' expectations.
Moreover, Bailey highlighted that liquidity is expected to increase throughout the year, and that investments in real estate will be influenced by advancements in artificial intelligence.
Furthermore, the impact of climate change will not only affect property values but also create new opportunities.
Reflecting on the events of 2023, Bailey noted significant value corrections in global property markets. While residential markets remained relatively stable, commercial sectors experienced substantial downturns.
Looking ahead, Bailey mentioned that new lending rates will be lower than those observed at the end of 2023 but higher than previous deal levels. Despite anticipated rate cuts by central banks, the perceived tightening of monetary policy may persist for many.
Bailey concluded by emphasising that this transition, although challenging for some, is pivotal for the real estate market's recovery in 2024.
Reduced property values, lower interest rates, and some involuntary selling are expected to facilitate the anticipated upswing in investment volumes.
