Many analysts agreed that the savage sell off was likely triggered by reports that Cyprus would be forced to rid 400 million Euros worth of its gold reserves to fund its bailout. However, some argue that there are deeper forces at play, with a brighter outlook for the global economy now drawing investors into riskier assets such as shares rather keep it in low earning "safe havens".
All things being equal, not even massive money printing by major global central banks (otherwise known as quantitative easing) could raise the price of the precious metal as it lost its allure as a hedge against inflation. A more sanguine argument is that investors ignored the deterioration in gold market as it was oversold, and that the price will rebound to bull market status again.
The price deterioration was also caused by an improvement in the United States economy particularly in the commodity intensive construction and housing sectors, as capital investment is injected throughout the economy. In fact, despite all the uncertainties in global markets as whole, demand for luxury homes in 2012 continued unabated in major cities around the world.
According to the Frank Knight Wealth Report 2013, the instability of the global economy has propped up luxury homes and given them safe haven status among the world's super rich. In 2012, just over a quarter of high net wealthy individuals factored in their main residence and second homes to store wealth in tangible assets and this trended is expected to increase as they add to their residential portfolios in 2013.
Globally, the number of people with assets of US$30 million or more increased by 5 percent in 2012, and will increase by another 50 percent over the coming decade. In real terms, the combined annual GDP growth of the BRIC countries (that is Brazil, Russia, India and China) is equivalent to the creation of a new economy the size of Italy each year. By comparison, the combined growth of the top 15 emerging economies equates to the creation of a new Greece each month, without its debilitating debt problems. This means, there are more people who want and can afford luxury property in the most sought after locations such as London's Holland Park, a villa on The Peak in Hong Kong, an Upper East Side apartment in Manhattan or Sydney Eastern Suburbs.
The highest growth in wealth creation in the next 10 years is predicted to take place in Asia and Latin America, with London and New York, the top two destinations for high net worth individuals in 2012 forecast to remain static until 2023.
Australia too is well positioned to attract wealthy foreigners, with Sydney coming in at seventh in the world's top cities list and Melbourne ranked 22, each coming in at No. 2 and No. 3 respectively for a quality lifestyle. High net worth individuals, particularly from Asia, favour destinations with adequate liquidity and transparency, and an existing Asian population. This puts Australian cities neck and neck with London and New York.
The Australian government's Significant Investor Visa scheme, which came into force last November has also been a positive boost in the luxury property market, fast-tracking residency for foreigners, who spend US$5 million or more in complying investments. The anticipated surge in luxury property sales as a result of the visa's introduction is already gaining momentum, and should help Sydney's luxury market keep its premium valuations. Sydney came in as the world's 9th most expensive prime residential property market, with prices averaging US$21,700-US$24,000 per sqm in the fourth quarter 2012.
Wealth creation on the whole has not been dented by the decline in the global economy and the demand for prime property in safe-haven investments has continued. Add to this the diminishing systemic threats to the global economy, and long term investors are beginning to view the low returns on triple-A government bonds and cash in the bank as negative. Investors would be well placed to reassess their current portfolios and seek real-term profit in safe havens with greater returns by adding value.
And why not? The big sovereign wealth funds have been active in property investment for the last couple of years, so have the global private equity funds, which were much more active in 2012. Why would private investors not draw confidence from this, and look to invest themselves?
Source Notes: Knight Frank's annual global Wealth Report;
Australian Financial Review, ww.afr.com/property/world_wealthy_target_australian_dv7Nj7oO1.
Article source: http://www.thethailandlinks.com/2013/05/14/all-that-glitters/
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