By Scott Keck, Chairman, Chairman of Charter Keck Cramer
After 70 years of post World War global economic reconstruction, more recently some recovery following the global financial crisis and in conjunction with a degree of economic liberation across the former Soviet Union and within China, the world is now witnessing a dramatic rise in aspirational middle class wealth and the beginnings of significant wealth re-distribution from the elite social (wealthy) classes in those same countries.
It is astounding how quickly this phenomenon is strengthening and although emerging initially from countries such as China and Russia, it is anticipated to occur elsewhere across South-East Asia, India and South America. This surge in new wealth is an event which is external to the traditionally more wealthy countries in North America, Europe and Australia, but its impact is now being evidenced in the rocketing prices of some asset classes. It would seem to be far more significant and global than the impact of the “Arab wealth” of past decades and relates to a structural shift in global wealth transfer rather than a short term aberration.
High value European real estate (whether villas around Lake Como, London mansions, or country estates), is now at extraordinary values due principally to demand from non-traditional, new wealth. Elsewhere, real estate whether in completed form, or as development opportunities, is fiercely bid in the USA, Canada, and Australia by Asian interests, not only from China, but also Singapore and Malaysia, but principally the Chinese diaspora. The flight of funds from these countries is in part an exit from perceived sovereign risk, due to local legislation to limit real estate speculation in the country of origin, the more favourable land tenure afforded by the western freehold title system, lack of domestic development opportunities in and the need for diversification away from the country of origin, high cost of development sites, and, possibly in some instances, for the “legitimisation” of funds.
The short term beneficiaries of this price spiral, now selling assets into this increasing demand, have not found themselves in a position of windfall through clever strategy or specifically buying ahead of a perceived market shift but rather, simply by happenstance, that they owned assets at a time of unprecedented accelerated demand. The world is experiencing a “Black Swan Event” of scale and probable duration that will entice speculative investment anticipating that the consequent upward “re-pricing of assets” will continue. This capital phenomenon is being led by the already wealthy elite and underpinned by acceleration in the rising wealth of the expanding middle classes from developing economies, who at modest individual scale seek “Western investments”, but who as a group amount to significant influence.
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