Studying the market demand and its structure, as well as determining the categories of people involved in it, is extremely important for conducting analytics and drawing up investment plans.
One of the most influential categories is «Ultra-High-Net-Worth Individuals (UHNWI)».
There are few of them, nevertheless they can radically change the market perception by other participants within months, out of nothing creating trends and providing various development forecasts.
At least, it is fair to say on the example of the real estate market of the United Arab Emirates.
- Who are UHNWI and what role do they play in the UAE market
- Situation in 2021 - pandemic growth
- Where and what kind of real estate do they buy
- Where to buy real estate in the UAE
- What kind of real estate attract super-rich people: how can you make money
Who are UHNWI and what role do they play in the UAE market
The wealthiest people on the planet are billionaires. As of 2018, there were 2,208 people worldwide with a total net of USD 9,100,000,000,000. In 2021, their number reached 2,755 people. Four people from this list became «centimillionaires» — people, whose wealth is USD 100,000,000 or more.
Billionaires are two hundred thousandth percent of the planet's population.
Ultra-High-Net-Worth Individuals (UNHWI) are super-super-rich people, which are on a step lower than the billionaires. They constitute only 0.003 % of the world's population.
Ultra-High-Net-Worth Individuals, UHNWI are people whose stable financial position more than USD 30,000,000. Usually, the range is from USD 30,000,000 to USD 100,000,000, taken at a fixed dollar value for 2018.
The amount can be more, but it cannot be less.
This is one of the three subcategories of High-Net-Worth Individuals — individuals with a high net worth. It is the wealthiest subcategory.
The other two are HNWI and very HNWI. These are people with a fortune of more than USD 1,000,000 and USD 5,000,000.
It is important to note that we are talking about net worth, which is a pool of all assets that such an individual owns.
It is quite a natural situation when an individual’s assets contain shares of an intensively growing company worth tens of millions of dollars, while this individual does not have any high investments and lives off a lot of loans.
This is important to understand, as even an individual who owns tens of millions of dollars can be quite restrained about buying real estate worth USD 10,000,000 – USD 15,000,000, which the United Arab Emirates is famous for.
Despite the fact that such wealthy residents are interested in real estate, you must be sure that your proposal will stand out in the market.
By the beginning of the third decade of this century, the total wealth of UHNWI or HNWI, was about USD 30,000,000,000,000.
Quite interesting that the majority of real estate buyers in the UAE are nationals. It is reported Haider Tuaima, the head of the research agency ValuStrat.
48.9% of UHNWI are expats.
Thus, there is no need to expect much activity from this population category at the moment, since most of them have already satisfied their main demand for real estate in the Emirates.
However, according to the Knight Frank report, in the next 5 years in the Middle East region, the number of HNWI and UHNWI will increase by 25%. Around the world, their number will grow by 29 %, i.e. up to 663,483 people.
If the market is attractive during this time, it is possible to predict the influx of wealthy foreigners to the territory of the United Arab Emirates in the near future.
As of June 2021, 22 properties worth about USD 10,000,000 were sold in Dubai. During the same period, from January to June 2020, 19 properties were purchased.
Due to such high sales volumes, it makes sense to expect an increase in demand from HNWI. On the one hand, prices for elite real estate are still low, but, on the other hand, we can speak about the prospects for intensive growth.
It is important to note the desire of HNWI to diversify its real estate portfolios. They strive to cut down on risk factor. In addition, they are ready to buy not only super-elite real estate, but others.
However, in the next five years, UHNWI will be interested in the real estate markets of Asia. It is indicated by the survey data from the five-year forecast of the Knight Frank Agency, which was released in the first quarter of 2021.
We shouldn’t overestimate the upcoming increase in the number of super-rich investors and buyers in the Middle East and, in particular, in the UAE.
Nowadays, it is the fact that Asian markets are the most attractive for investors.
It should be noted that in the coming years the demand in the real estate market of the Emirates can be divided into two groups. The first group is HNWI, who have impressive wealth and are ready to invest in the local market, and the second group is a huge number of buyers, who will buy real estate beyond their means.
The latter will do this by extremely profitable mortgage loans provided by the country's banks.
The real estate purchase for mortgage payment is from 40 to 80% of all purchases in different market sectors.
According to the data on the sold luxury properties, it will grow in the next couple of years.
The forecast on such a risky customer demand is dangerous.
Situation in 2021 - pandemic growth
Let's take a deeper look at how HNWI «feel» and what their prospects are against the ongoing coronavirus pandemic around the world.
How the rich got richer
The wealth of the richest people on the planet increased by 54% during the pandemic. A similar trend is observed in relation to HNWI. Their total wealth amounted to USD 12,390,000,000,000. In 2020, they had USD 8,040,000,000,000.
How the pandemic helped
We listed the main reasons for this growth:
Huge portion in assets. The stock market has broken away from the real sector for a year. It looks like a bull market that shows new growth records month after month.
A bull market is a market dominated by investor’s optimism. Lots of people are ready to become buyers of any assets. Thus, demand begins to grow over supply, which in turn leads to higher prices.
Today, there are all reasons to believe that we have entered the stage of irreversible financial bubbles that will burst sooner rather than later.
In other words, the available funds of super-wealthy people can quickly turn into dust, because most of it was invested in unsecured assets.
So far, a bull market is a bull market.
The sources of stock market growth lie in big money that need to find growth points. In a situation where the real sector is in trouble, the safety search leads investors to the stock and real estate markets, as well as markets of precious metals.
They don’t want to do it. It’s just a necessity.
- Big money was made on teleworking and e-commerce. Due to this trend, everyone, who had Amazon assets in their portfolio, was able to get rich.
States are for enrichment sponsoring.
First, as we have already pointed out, the real sector is not doing very well. States are spending huge amounts of direct investment to protect it from collapsing.
Second, the most important feature of the modern economy is financialization, i.e. the separation from the real sector of financial instruments that express this market. For instance, futures, an extremely popular financial instrument, is the financialization derivative of the world economy.
Since this process is impossible without big banks, it is becoming more and more important market participants. It is the axis around which all other sectors of the economy begin to rotate. Banks are becoming too big and too important to collapse for some reason. Therefore, trillions of dollars are also used to support it.
It is obvious that some part of this money ends up in the hands of specific individuals.
It can be assumed that in the near future the number of UHNWI and billionaires will increase. More money means more interest in diversifying their portfolio, including real estate assets, because it is enough to save their money.
The United Arab Emirates is a large and attractive market. Those wealthy investors, who will not be interested in real estate in the Asia, are likely to pay attention to either the Middle East or Africa.
Where and what kind of real estate do UHNWI buy
According to The Wealth Report and The Attitudes Survey in 2021, provided by the Knight Frank Agency, 31 % of UHNWI in the Middle East are ready to invest in real estate. This number is higher than the global average, where 26% are ready for such investments.
The main locations for investors from the Middle East and South Asia are the USA, Great Britain, Turkey, Spain and, of course, the UAE.
Where to buy real estate in the UAE
First, we should talk about Dubai. According to the Knight Frank report, Dubai is the second city in the world after London by the number of luxury real estate properties, as follows 42,356 houses.
Dubai is the engine of the entire UAE real estate market. It is quite loyal to foreign residents and business. Besides, it is a major transport and commercial hub.
Abu Dhabi is the capital of the country and the largest emirate – goes next to Dubai. This city is also the most convenient place for foreigners for moving, taking a vacation or running a business.
Moreover, there are five more emirates: Ajman, Fujairah, Ras Al Khaimah, Sharjah, Umm Al Quwain.
Ras Al Khaimah is the most popular area among foreigners, who want to buy real estate or run a business. It is the location of one of the two large offshore zones of RAK ICC in the UAE. Another zone, JAFZA, is located in Dubai.
Let's list the main areas for real estate buyers.
Al Reef, Saadiyat Island, Yas Island, MBZ City, Al Raha Gardens, Masdar City, Al Maryah Island and Corniche are in Abu Dhabi. Villas and apartments are the best-selling luxury real estate in these areas.
Palm Jumeirah, Jumeirah, Arabian Ranches, Emirates Hills, Al Barari, Mirdif, MBR City, Dubai Hills Estate and Dubai Marina are in Dubai. These are the best areas for buying luxury residential real estate.
Both lists are selected based on expensive real estate properties, which were sold over the previous year. In other words, these locations can catch attention of the HNWI.
Downtown Dubai, Business Bay, Dubai Creek Harbor, Dubai Sports City, Dubai Silicon Oasis, are among the areas focused not only on luxury real estate, but also on commercial sector.
The other four emirates, such as Ajman, Fujairah, Sharjah, Umm Al Qaiwain, are more tourism-oriented or not at all adapted for foreigners. For instance, in Fujairah foreigners cannot buy real estate and do business.
What kind of real estate attract super-rich people: how can you make money
Wealthy buyers prefer three main types of real estate: large villas, medium and large apartments, commercial real estate, or rather the aspect that is devoted to storage and sorting spaces.
Villas are mostly purchased for private use or to keep money in safe assets. It can be either a large, ultra-luxurious villa of several hundred square meters, or a more modest, but no less high-quality family villa, if you need to live in the UAE with your family.
Palm Jumeirah is the leader in real estate sales in the Emirates. Wealthy people spend tens of millions of dollars on expensive residential properties here. However, family villas are sold best in more «provincial» areas such as Arabian Ranches, Jumeirah Village, Discovery Gardens.
Much less often, villas are used as a resource for flipping, that means buying low and selling high.
Major apartments in various commercial areas are better used for flipping. There is a higher demand for such a proposal from employees and business representatives. On average, apartments are cheaper than villas, which are also regarded as elite properties.
Apartments are good enough for both buying and renting. In addition, lots of people started to buy a fairly spacious housing following a teleworking trend.
When wealthy investors don’t live in the UAE, but stay on the territory of the country quite often, they usually use apartments for their own needs.
Various companies and private investors, that are interested in e-commerce, use storage and sorting spaces. As we mentioned above, one of the main sources of enrichment for super-rich people is the development of online retail, services and the business.
«Ultra-High-Net-Worth Individuals» or UHNWI is a super-rich population category with assets, which cost from USD 30,000,000 to USD 100,000,000.
They are classified as the highest category among other individuals with high net worth, such as HNWI and VHNWI — «people with high net worth» and «poeple with very high net worth», whose wealth is USD 1,000,000 and USD 5,000,000. However, they are not wealthy enough to be considered billionaires.
Their number of the world's population is only 0.003%, but it is difficult to overestimate the impact on the real estate markets that each of these individuals has.
Most of the real estate investors and buyers in the UAE are locals, citizens and residents, i.e. expats.
Among UHNWI — 48.9 % are expats, so they constitute the category that for the most part is rather passive on the market, since they have already acquired most of the real estate, they are interested in.
Nevertheless, the data show that the number of such super-rich buyers will increase in the foreseeable future, and their interest will gradually spread to the regions of Asia, the Middle East and Africa.
In the Middle East, UHNWI are more interested in buying real estate than in other areas.
Thus, everyone who does not go into investing in Asian real estate is more likely to choose such a market as the United Arab Emirates in the next five years.
The demand on their part should not be overestimated, but it should definitely be kept in mind.
These wealthy buyers and investors are likely to be interested in the three Emirates - Dubai, Abu Dhabi and Ras Al Khaimah. Dubai leads this list.
The main real estate categories that they may be interested in:
- villas for private use;
- making money flipping and less often buy-to-let apartments;
- commercial real estate (storage and sorting spaces), which are related to the rental sector and popular with many local and international companies.
These buyers tend to diversify their portfolio as much as possible in order to protect themselves from unnecessary risks, so they are ready for experimental acquisitions.
Despite the fact that there are few of such citizens and a proposal is available on the market, your offer should really be attractive.