Millionaires’ fortunes are shrinking. Here’s what that means for real estate

For the first time in three years, the wealthy have seen their fortunes shrink

Sep.September 26, 2019 07:00 AM
(Credit: iStock)

(Credit: iStock)

Millionaires aren’t what they used to be.

The global population of individuals worth at least $30 million saw their net worth shrink in 2018 for the first time in three years — even as their ranks grew, according to a new report by research firm Wealth-X. Following the downward trend of billionaires’ fortunes, their collective wealth has dropped 1.7 percent to $32.3 trillion last year, amid stock market volatility and concern over the U.S. and China’s trade war.

As a result, the demographics of where the world’s wealthy live have changed. Notably, New York City is once more the world’s capital of millionaires, bumping out the former top city, Hong Kong. The Chinese city saw a 10.6 percent dip in high-net worth individuals, and of those folks, their wealth shrunk by 9 percent. That’s largely a reflection of the trade war, according to one of the report’s authors, Maeen Shaban, director of research and analytics.

On a global level, 31 percent — or about 81,000 high-net worth individuals — were living in the U.S. last year, between either New York, Los Angeles, Chicago, San Francisco, Washington, D.C. or Dallas. The Big Apple had nearly 9,000 ultra-high net worth residents, a 1.3 percent increase from the previous year.

It’s unclear what that means for New York City’s real estate market, which is struggling with a flood of condo inventory and deals only closing after hefty price cuts.

But decline in net worth and recession fears could lead to cutbacks on lavish spending on assets such as “yachts, private aviation, [and] luxury property” among other major purchases, according to Shaban.

Just over a fifth of this ultra wealthy population, which totals around 265,000 worldwide, are interested in pouring their money in real estate for personal or investment reasons, according to the report. Alternative assets, including real estate, accounted for 6 percent of this tier’s holdings last year.

More broadly, international buyers are retreating from U.S. residential markets in droves. Between April 2018 and March 2019, foreign buyers spent $77.9 billion, down from $121 billion a year earlier.

And though brokers say wealthy domestic buyers, who either inherited their fortunes or made them through working in technology, have largely stepped in to the New York market, they’re buying slowly, if at all.

“There are billions of dollars on the sidelines,” said Compass’ Kyle Blackmon, speaking at an event in August.

WealthX’s findings support that assertion. The report notes that many high net worth individuals focused on wealth preservation last year and approached 2019 with “some trepidation.”

“Developments over the first half of the year largely justified this sense of caution,” authors wrote, concluding that “the near-term prospects are therefore not especially favorable.”

But appraiser Jonathan Miller noted that a downturn in the market can also represent “a period of opportunity” for flush buyers. And there’s been historic trades in recent months by billionaire buyers such as Ken Griffin and Jeff Bezos. In June, the market had its best month on the books — but that was largely thanks to buyers trying to beat a looming transfer tax.

“The question is will they continue to invest?” Miller continued.

Write to Erin Hudson at [email protected]

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