_Australia’s ultra-rich accumulating wealth faster than ever

While the global economy and markets remain difficult to predict, Knight Frank’s The Wealth Report 2022 shows that the fortunes of the wealthy not only remain resilient but are strengthening and accumulating. The population of ultra-high-net-worth individuals (UHNWI), those with a net worth of US$30 million or more, continues to grow in Australia and around the world with lifestyle shifts and pandemic restrictions leading to an increase in wealth that has not been seen for years.

Australia’s UHNW population

"Over 2021 alone, Australia's UHNW population grew by 10.1% to 20,874 people, above the global average," according to Head of Residential Research, Michelle Ciesielski.

“Our wealth model predicts this will grow by 31% for this population over the next five years to 27,330 people, with the billionaire population of Australia expected to grow by a further 37% over this time. It’s extraordinary to see such momentum in the growth of our UHNW sector in an economy and population of Australia’s size," said Michelle.

The spread of the UHNW population in Australia is also expanding, with the UHNW population outside of Australia’s four major capital cities growing by 13.4% in 2021, as opposed to 8.1% in the major cities. This trajectory is expected to continue, growing by 38% over the next five years outside the four major cities as compared to 26% within them. However, Sydney leads the nation with the highest concentration at 25% in 2021, with 5,244 UHNWIs living in the city, with Melbourne projected to see the strongest growth over the next five years of 34% growth to 4,968 UHNWIs living there in 2026.

Image: Sydney has the highest population of UHNWs in Australia, according to The Wealth Report 2022 data

The accumulation and expenditure of UHNWI’s wealth

Unprecedented access to technology and the digital democratisation of investments, including private equity, has driven greater levels of wealth creation and growth than ever before. Australian UHNWIs prioritise their investment strategies around the following objectives in order of importance: capital preservation; capital appreciation; income generation; impact investing such as ESG, according to the 2022 Attitudes Survey.

The appreciation of asset values, from property markets to stock markets to luxury collectibles, have all helped to boost the fortunes of those holding investment portfolios. Property remains a cornerstone of wealth, comprising almost two-thirds of UHNWI’s wealth in 2021.

Chief Economist, Ben Burston, said: “The onset of the COVID-19 pandemic in 2020 led to an unprecedented amassing of savings across Australia’s population, which enabled significant investment upside over the last 12 months. We predict that 2022 will be a record year for global cross-border investment, when investors will have the opportunity to rebalance portfolios, execute business plans and implement strategic goals.

“The last year has been a record 12 months for private capital investment into commercial real estate, too. Real estate remains a cornerstone of many UHNWI investment portfolios, occupying a unique position somewhere between bonds and equities where it enjoys the upside of rising rents and values in times of economic expansion, but also security during times of volatility. It’s likely that we will see eco-investing, inflation and asset rotation as the key investment drivers for commercial property investment this year.

“On average, 37% of Australian UHNWI’s investable wealth is allocated directly to commercial property. This investment has traditionally flowed largely into the major sectors – offices, retail and industrial – but private investors are increasingly seeking diversification into emerging sectors such as healthcare, data centres and agricultural land.”

A new asset class of interest in UHNWI’s investment portfolios over the last year is cryptoassets, with a higher proportion of Australian UHNWIs (27%) investing in cryptoassets in 2021 than the global average (18%). The Knight Frank Attitudes Survey further found 16% of Australian UHNWIs are investing in non-fungible tokens (NFTs) compared to the global average of 11%.

The global value of cryptoassets was US$2.4 trillion at the end of 2021, a 12-fold increase since early 2020, according to The Economist Magazine. There are now more than 8,000 cryptocurrencies in circulation for investors to choose from, as well as myriad NFTs available to buy.

The threats to UHNWI’s wealth

The ongoing disruption created by global supply chain instability is the leading threat to the ongoing creation and preservation of UHNW wealth in Australia, with 69% listing it as their leading perceived threat. This is followed closely by new COVID-19 variants, at 65%, indicating that strong local vaccination rate is not considered a sign that the overarching threats of the pandemic are behind us.

The future of Australia’s UHNW economy

Over the next five years, Australasia will experience more growth in the UHNW population than any other region in the world, with Australia’s UHNW population projected to grow by 31% over this time.

“The greatest opportunities that UHNWI have identified to grow their wealth in 2022 are in private equity, venture capital and technological adoption first and foremost, followed by real estate. We may see push back on the growth of wealth in this UHNWI class, with policy responses such as wealth taxation implemented to tackle the increasing inequality, however governments will be conscious of pushing wealth out of their economies with an overzealous regulatory approach," Michelle commented.

In the ten years from 2016 to 2026, the UHNW population across the globe will more than double from 348,355 to 784,671, with Asia surpassing Europe as the second largest wealth hub in this time.