Commercial and residential real estate has proven to be an attractive market for high-net-worth investors in recent years.
At the same time, the real estate investment landscape is undergoing significant changes, with new property classes growing in popularity and wealthy real estate investors having a more diverse range of holdings in their portfolios, according to a recent report from Wealth-X, a global information and insight business.
Wealth-X said that its research found that after several years of sustained growth, high-end residential real estate has experienced moderate declines over the past year. Several factors account for the declines, but they may represent a correction toward a stable trend after a period of significant growth.
Commercial real estate investments have also continued to grow, also attended by a moderating trend among high-net-worth investors.
In these circumstances, how can advisors best serve the needs of wealth real estate investors in the midst of a changing market?
Wealth-X noted that high-net-worth real estate investors approach these purchasing decisions with different investment strategies in mind, and that the investment often involves a range of additional personal and practical factors. “The ability to address these factors will be key to providing valuable guidance and building lasting client relationships,” Wealth-X said in the report.
Many investors, it said, are looking for stable opportunities in core markets and are often seeking to take advantage of the protection against inflation and the beneficial tax treatment real estate affords.
Others want a more active investment vehicle and are willing to put money into secondary markets and in properties with higher spreads. Several key categories have been attracting investment, including office space in West Coast cities, where technology companies are driving growth.
Besides investment strategy, many wealthy real estate investors will bring a range of practical and personal needs to investing, particularly in regard to the residential sector. They may want to enjoy personal use of a property, live close to other family members or to a child’s university or find a location that can support their preferred vacation activities.
Wealth-X said that for these types of investments, it was also important to consider local regulations that can affect tax treatment, as well as property management issues.
Regarding tax strategy, it said advisor needed to help high-net-worth real estate investors understand and align their property investments in the most tax advantageous ways and understand the tax planning effect of their investment decisions.
According to the report, advisors can provide another value-add service by identifying new markets and investment opportunities. As most of these are sourced through a network of sponsors and outside investment firms, maintaining a strong relationship network across a wide range of investment classes is key.
So too is actively pursuing new opportunities and sourcing new relationships.
Advisors should also consider mastering a specific area to provide specialized market-leading services in support of investors looking to move assets into those categories.
Wealth-X said successfully growing a high-net-worth client base depends on the advisor’s ability to address these key issues as well as their tax implications, local market features and legal risks.
In a related study, Wealth-X reported key findings from its report on global regions most popular with high-net-worth real estate investors:
- New York has the highest ultra-high-net-worth population
- London has a similar number of “second homers,” despite a smaller ultra-wealthy population
- Paris has the second-highest ultra-rich population in Europe after London
- Geneva has the highest density of rich people per capita (excluding Monaco)
- Singapore is second, followed by San Jose, California, the center of Silicon Valley
- Among suburbs and smaller towns, Beverly Hills has the highest overall number of very wealthy residents, and Aspen the highest concentration per capita
- Mumbai and New Delhi have the lowest concentrations of rich people, their exploding populations diluting growing affluence in these cities
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