New report reveals Australia’s millionaires love property, luxury vehicles

Australia’s rapidly growing population of millionaires hold a staggering 40% of their fortunes in property, according to new research from Merrill Lynch and CapGemini, which shows wealth in the Asia Pacific region has now rebounded to pre-GFC levels.

The report into wealth in the Asia Pacific region showed the number of millionaires grew more than 25% to over three million in 2009, with total wealth up 31% to $US9.7 trillion.

As revealed in the early World Wealth Report from Merrill Lynch and CapGemini, the population of millionaires in Australia increased 34.4% during 2009 to 173,600. Their combined wealth grew 36.8% to $US519.4 billion.

The new report into wealth in the Asia Pacific region drills down into how Australia’s wealthy set up their portfolios and the conclusion is obvious – Australia’s love affair with property remains as strong as ever.

Australian millionaires placed 40% of their portfolios in property, higher than any other country in the region. The next most popular assets to invest in where equities (25% of total portfolios) and cash (19%).

Peter Opie, senior vice president of investments at Merrill Lynch, says a love of property appears to be ingrained in many Australians.

“Property is sacrosanct in our culture. Unlike some places around the world, you will die kicking and screaming in Australia before you give up on your property – you can’t just give the keys back and make a fresh start.”

Opie points out that Australia’s wealthy appear to be using property as a sort of replacement for fixed income assets such as bonds, which are standard part of the portfolios of the wealthy in the US and Europe but are harder to access in Australia.

However, Opie argues property is hardly a like-for-like swap for low-risk bonds. Most property investments have some sort of gearing attached to them, and so have a higher level of risk attached than bonds.

Opie predicts the level of investment in equities will rise over the next six to 12 months in Australia and around the world, particularly with interest rates outside Australia at long-term lows.

He argues that Australian investors are currently content to sit tight and stay out of the market, with banks offering almost risk-free returns of 5% and sharemarkets offering risky returns of about 7%.

However, while rates are expected to rise in the short-term, Merrill Lynch is less convinced rates will remain high over the longer term, which will lead wealthy investors to look back towards equities.

“People are going to embrace more risk in the coming six to 12 months.” he says.

The report also looks at how the rich spend their money on what the report calls “passion investments”.

The conclusion is that while many in Asia prefer jewellery and similar collectables, Australians prefer luxury cars, yachts and jets, which account for 32% of all “passion” investments.

Opie says Australia’s wide open spaces and abundant coastline means these assets are a lot more practical than bling, which is popular in the cramped cities of Hong Kong and China.

“A wealthy Australian does not spend $60,000 on a nice watch as readily as they would spend $100,000 on a nice new car.”

As well as an increase in investment in equities, Opie also predicts wealth level in Australia could rise in the next few years as mergers and acquisition activity improves and wealthy entrepreneurs sell out.

“As we see business strength come back, and the debt markets open up, and the M&A market pick up, we are going to see business sales… that could increase the wealth of many.”