What the future may hold for HNWI RCBI investors

By Moustafa Daly

High-net-worth individuals are those with at least $1 million dollars in assets, and ultra-high-net-worth individuals are those with $30 million or more.

Following the pandemic, the fortunes of HNWIs and UHNWIs witnessed a notable upward swing, with the numbers of UNWIs doubling in less than two years after the pandemic, according to data from Credit Suisse, reaching 218,200 individuals.

A turbulent global market in 2022 spooked investors and, for the first time since the pandemic, led to a decline in the wealth portfolios of UHNWIs by 10%, which is equivalent to $10 trillion, as per a Knight Frank Wealth Report.

This has been due to a number of global shocks starting with the Ukraine war that sent energy prices across the globe soaring, in turn leading to higher-than-targeted inflation rates across much of the developed world and thus, escalating interest rates from the Fed and tighter monetary policies globally that have had many repercussions on the global economy.

This, according to The Wealth Report, hasn’t stopped wealthy investors from keeping an optimistic outlook.

“What I was most surprised with is that in our survey, nearly 70% of UNWHIs stated that they are positive about their ability to grow their wealth portfolio and the value of their portfolios in the course of 2023,” explains Liam Bailey, global head of research at Knight Frank and editor-in-chief of The Wealth Report.

“It was particularly interesting because when we were doing the survey in January and February [of 2023], we were in a really difficult period in terms of the bank rate growth and uncertainties of the direction of the Fed. But I think there was just a feeling that there could be opportunities, in distress assets in particular, that people could take advantage of, and I think that’s what’s underpinning the positivity,” he adds.

Investors, according to the report, are anticipating a swift economic rebound in 2023 – but it may not be that straight-forward.

“The question is whether it’s a sharp rebound or a gentle rebound in values of portfolios, it’s probably more the latter,” predicts Bailey. “The reality has been that we’ve had the bank crisis over the past few weeks, which put a question mark over the availability of debt in the property sector in particular.”

Second residencies and passports are on the rise

The pandemic has also served as a cautionary tale to many wealthy individuals who realized that their global mobility could be compromised should a similar global event take shape in the future, even among those with well-established passports. 

This has led investors to seek second and even third passports and residencies across different locations to secure their access to global markets in any event, leading to a boom in the residency and citizenship by investment industries on a global level.

The hiked demand was evident in report’s findings as it surveyed wealthy individuals and accordingly concluded that, in 2023, 13% of UHNWIs are ‘planning to apply for a second passport or new citizenship’ in the near future.

“If we look at demand globally, we see a shift in people’s time horizons as well, with many now looking for medium-term solutions, namely places where they may want to spend several months and that offer access to good healthcare as well,” further explains the report.

There were minor discrepancies in the answers of UHNWIs surveyed across different regions, with the notable exception from Australia where only 1% said they were considering other passports. In Asia, the figure stood at 16%, being the highest.

The Americas are next with 15% and 11% of UNWIs in Europe and Africa answered affirmatively when asked if they would be seeking second passports or citizenships.

Contrary to common belief, programs in Europe aren’t the only main attraction.

“Western schemes tend to dominate industry discussions, but other countries are becoming more important,” reads the report. “In 2019, Malaysia’s investor visa was bigger than all European schemes combined. South Korean and Panamanian visa schemes are in high demand too, with both countries approving more applications than the EU powerhouses of Portugal and Greece for citizenship,” as per the report.

Also, a trend that’s been taking shape since 2022 is the rolling back of golden visa programs and schemes across Europe. This has happened in the UK, which scrapped its Tier 1 Investor Visa following Russia’s invasion of Ukraine, with Ireland and Portugal now following suit in scrapping their programs citing hikes in property prices. A Spanish party has also recently proposed ending the country’s popular golden visa program for the same reasons.

“Passive investment is out and active is in,” stated the report, indicating that governments are now focused on bringing in wealth that would be active in the economy, rather than passive investments in real estate or other assets. “In 2008 and 2009, there was this really big supply of housing inventory in places like Spain, Portugal and Southern Europe, and there was an incentive to use these [golden visa] schemes to try to create demand for that product,” explains Bailey. 

“At the moment, the shift seems to be more towards a longer term, trying to attract wealth for the longer term in innovation and entrepreneur visas,” he adds, reiterating the report’s conclusion that stronger economies now, as opposed to 2008 and 2009, are focused on job creation, innovation and entrepreneurial activities because, simply, they can afford to.

Competition for wealth and talent is intensifying 

Therefore, the rolling back of some golden visa programs is coupled with introduction of programs that focus on entrepreneurial investments, which are often less favored by RCBI investors but may soon become the main offering.

“Governments in general are moving away from investor-led schemes towards more entrepreneurial schemes; whether that’s more popular with the investors trying to get a visa, I think it’s difficult to say at the moment,” explains Bailey. “It’s a very difficult thing to micromanage [the purpose and legitimacy of investments] at the governmental level. But wherever possible, governments are trying to create themes that attract investments in local businesses for the long-term.”

However, The Wealth Report also predicts that global demand for property valued between €3 and €7 million to remain strong in the near future, ‘particularly among buyers operating out of more sluggish economies.’ 

This may continue to contribute to a surge in pricing of such real estate properties in prime markets that offer golden visas by way of real estate investment, and even markets that don’t as not all investors are in it for the potential of a second residency or passport.

“Purchasers need to navigate ever more global rule changes including a Canadian ban on non-residents buying this year and next, a new mansion tax in Los Angeles, tighter lending rules in Singapore, higher fees for Australia’s non-resident buyers and a new Spanish wealth tax,” states the report.

The tightening of restrictions is necessitated by supply and demand dynamics, which are often not in the favor of property investors.

“A lot of people globally have got money to invest in other markets and they like property,” says Bailey. “The problem is, the market with money to invest grows larger every year, but the markets that they target don’t really change; Canada; Australia; New Zealand; EU; UK; US – mostly anglo-sphere locations and European markets.”

“The problem with that is when you have a small market targeted by people from around the world; you have a problem of affordability [of property for the local population]. So you see restrictions and taxes coming in trying to control that flow of wealth,” he adds.

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