The Knight Frank Luxury Investment Index (KFLII), which tracks the value of ten investments of passion, increased by a healthy 16% during 2022, comfortably outpacing the rate of global inflation while outperforming the majority of mainstream investment classes, including equities and gold, according to the most recent edition of Knight Frank's flagship report, The Wealth Report 2023.
The top-performing asset, as measured by the KFLII, was art, which generated a return of 29% over the course of the year ending in December 2022. Then came classic cars, whose performance last year was revved up by a 25% year-on-year (YoY) increase in 2022, the highest in nine years.
With an 18% annual rate of return, watches ranked third on the luxury index ranking.
The Wealth Report 2023, which conducts a thorough study across markets worldwide, also published its 'Attitudes Survey', which notes that roughly 53% of India's ultra-wealthy are likely to buy art among passion-driven investments, along with watches and designer handbags, with jewellery coming in second at 41%.
Classic cars ranked fifth, with 29% of respondents saying they would like to buy one in 2023. Since these financial asset classes have outperformed the global index, many ultra-high-net-worth individuals (UHNWIs) have decided to keep investing in them. Globally, the top three categories of passion-driven purchases are art (59%), watches (46%), and wine (39%).
"The results of our index and some of the staggering sums paid for investments of passion over the past 12 months highlight just how important their collections are to UHNWIs and how resilient many of these asset classes are to economic and geo-political events. Gen Z and Millennial wealth is also having a profound impact with new collectable markets emerging all the time," said Andrew Shirley, author of the Knight Frank Luxury Investment Index.
Prime International Residential Index (PIRI 100)
The value of the Prime International Residential Index (PIRI 100), which monitors changes in the cost of luxury homes around the globe, rose by 5.2% YoY in 2022, according to Knight Frank's The Wealth Report 2023. With the help of numerous visa incentives, Dubai's prime residential prices increased 44.2% in 2022, keeping its place at the top of Knight Frank's PIRI 100 and strengthening its position as a hub for ultra-high-net-worth individuals (UHNWIs) worldwide.
Globally, Mumbai's prime real estate market has seen price growth of 6.4%, moving the city up in the PIRI 100 rankings to place 37 in 2022 as opposed to 92 in 2021. Mumbai's luxury homes are predicted to increase by 3% in value in 2023.
Bengaluru rose from 91st to 63rd in 2022 thanks to a 3% increase in the value of its premium real estate.
The value of prime real estate in Delhi increased by 1.2%, improving its position from 93rd in 2021 to 77th.
Top sector of interest for investment by UHNWIs
Private investors were the most active buyers of commercial real estate globally in 2022, according to The Wealth Report. According to the capital flows tracker of the international property company, a sizeable US$455 billion was invested, making up 41% of the total. This is the first time private investment has surpassed institutional investment and reflects private investors' highest share of global commercial real estate ever.
Offices will remain the majority. It is anticipated that the office sector will receive over 40% of all private cross-border capital, with the industrial and residential sectors receiving a 19% portion each. The UK is anticipated to be the top location for UHNWI workplaces in 2023, with the US, Germany, Australia, and the Netherlands also expected to see strong demand.
