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Investment trends of SA's super-rich

Apr 09 2018 18:36
Carin Smith

Cape Town - Although real estate was the largest asset class for high net-worth individuals (HNWIs) in South Africa at the end of 2017, they have decreased their real estate allocation over the past ten years.

There was also a movement of funds offshore by local HNWIs over the past ten years. At the end of 2017, SA's HNWIs held 17% of their wealth offshore compared to 13% in 2007.

According to the South Africa 2018 Wealth Report released by AfrAsia Bank and New World Wealth last week this percentage is expected to rise to 22% by 2027. This rise will be fuelled by increased allocations to foreign property, foreign cash and foreign equities, according to the report.

The report defines HNWIs as those individuals with wealth of $1m (about R12m) or more. "Wealth” is defined as net assets of a person. It includes all their assets (property, cash, equities, business interests) less any liabilities.

For the purposes of the report, “real estate allocation” includes all local and foreign property held by the HNWIs, including their primary residence.

The report found that from 2007 to the end of 2017 HNWIs in SA decreased their real estate allocation from 33% in 2007 to 30% in 2017.
 
At the end of 2017, real estate was the largest asset class for HNWIs in SA (30% of total HNWI assets), followed by equities (28%), business interests (21%), cash and bonds (15%) and "alternatives" (6%).

Equities recorded the strongest growth over the past ten years, while real estate and cash were the worst performing asset classes, according to the report.

Real estate

The report found that SA’s residential property market performed poorly from 2007 to 2017 with average prices declining by 11% in dollar terms. Factors that impacted this include a significant depreciation of the rand against the dollar. In rand terms prime residential property prices were up during the 10-year period by around 60%, according to the report.

It states that new visa restrictions, which made it difficult for foreign buyers to stay in SA for more than three months at a time, likely deterred foreigners from buying homes in SA. The report also lists what it deems to be high estate agent commissions of up to 7.5% and high property transfer duties of up to 13%.

Furthermore, utility bills and levies are estimated to have increased by more than three times over the past 10 years. According to the report, this has discouraged people from buying property and forced many to downsize. It has also become more difficulty in getting mortgages following the global financial crisis.

Cash, bonds and equities

SA HNWIs decreased their cash and bonds allocation from 18% of total assets in 2007 to 15% in 2017. Over this period, local HNWIs substantially increased the share of their assets allocated to equities from 23% in 2007 to 28% in 2017.

Also, over the same period, SA HNWIs increased the value of their business interests from 20% of their assets in 2007 to 21% in 2017. For the purposes of the report, “business interests” refer to local holdings in businesses that an HNWI is or was actively involved in.

According to the report, this increase shows that entrepreneurship in SA may be rising.

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