Carry on spending...
In these troubled times the safest place for our cash is not shares and bonds but luxury acquisitions like wine, gold, art, vintage cars, property, jewellery and whisky – so investors need to keep calm and carry on spending, says Bill Jamieson
Atumbling pound, an economy close to recession, Brexit traumas, global trade tensions, business slowdown, and investors fleeing stock markets – at first sight there could scarcely be a worse environment for any form of luxury spending.
Yet for consumers who have the wherewithal and the confidence to invest in such uncertain conditions, this can be the busiest time for top-of-the-market property purchases, sales of fine wine and art, spending on top-ticket luxury experiences, not to mention a foray into the esoteric world of alternative investments.
Despite febrile conditions in world markets, an eye-popping list of the top luxury spending items over the past year compiled by global property and wealth consultants Knight Frank reveals the following:
A Portrait of an Artist (Pool with Two Figures) by David Hockney was sold by Christie’s for US$90 million – the most expensive work by a living artist.
A bottle of The Macallan 1926, hand painted by Michael Dillon, was sold by Christie’s for US$1.5 million – the most expensive bottle of whisky.
The Marie Antoinette pearl pendant was sold by Sotheby’s for US$36 million – the most expensive piece of pearl jewellery ever sold at auction.
A 1962 Ferrari 250 GTO was sold by RM Sotheby’s for US$48.4 million – the most expensive car sold at auction.
A bottle of 1945 Romanée-Conti wine was sold by Sotheby’s for $US558,000.
The Winston Pink Legacy, a 19-carat fancy vivid pink diamond, was sold by Christie’s for US$50 million, making it the most expensive pink diamond per carat. However, not everything readily brings down the auctioneer’s hammer. A 1766 Chippendale commode with ivory inlays which sold previously in 1991 for £935,000 (a record price for a piece of English furniture) was offered for auction by Christie’s with the inlays removed and an upper estimate of £5 million – but failed to sell.
Here in Scotland, estate agent Savills currently features a five-reception, four-bedroom property with 94 acres, outbuildings and stable block at Kirktonlees, near Auchterarder at offers over £2.85 million. And luxury property in the capital continues to attract wealthy buyers: a family home in Colinton, for example, is on the market at £1.75 million, and a three-storey house in Merchiston Avenue at £1.95 million.
And if these are not enough to whet the appetite, there is always Seton Castle in East Lothian, with its links to Mary, Queen of Scots, set in 13 acres of parkland and gardens in Longniddry. Savills says the castle has undergone a major renovation but it retains many original features including ‘Corinthian pillars’ and a cantilevered stone staircase in the reception hall. Its 13 bedrooms, working stables and private tavern are on the market for more than £8 million.
But it’s not just Scotland’s property piles that continue to attract luxury spend. Rare whisky forever excites buyers from around the world, and auctioneer Bonhams is as busy as ever in Edinburgh. A painting by colourist Francis Cadell of Spring in Iona recently sold for £35,000, while
Alexander Nasmyth’s grim study of Edinburgh’s Old Tolbooth fetched £31,312.
What in these apprehensive times explains the counterintuitive buoyancy in luxury spending? Several factors are at work. First, ten years after the global financial crisis, there is not just the persistence of ultra-low interest rates but the widespread appearance of negative rates. Across the Eurozone AAA-rated bonds with maturities of less than 25 years now have negative yields. And in Switzerland, long regarded as the safest haven for investors, even 50-year yields are now below zero.
According to the European Central Bank, AAA-rated bonds in the eurozone with a fiveyear maturity now yield minus 0.83%, while their ten-year equivalents yield minus 0.54%.
All told, almost $12 trillion of investmentgrade corporate and government bonds now have negative yields, predominately in Europe and Japan, according to data from Barclays.
Negative rates of interest reflect in part a desire by central banks to encourage spending by repressing returns on saving – at present, there is a global savings glut. They also reflect apprehension by investors over current stock market levels amid fears of a global slowdown.
The unattractiveness of investing in either bonds or shares has encouraged a scramble for alternative assets such as jewellery, property, paintings, antiques, fine art, rare wines and whisky, historic artefacts and classic cars. And in the investment sphere, there are eight types of alternative investments, ranging across commodities, venture capital and private equity. These, Falkirk-based investment adviser Tom Munro points out, can offer diversification and greater stability than an orthodox gilt/equity portfolio.
A long-time alternative asset favourite is gold – and little wonder, given that its price has risen from £171 per ounce at the start of 2000 to more than £1,200 today.
Meanwhile, for all our economic woes here at home, the UK is becoming ever more attractive to the super-wealthy due to the fall in the pound. Since the EU referendum in June 2016, sterling has fallen 16% against the Euro, 17% against the Hong Kong dollar and 18% against the US dollar. The greater the fall in sterling, the more affordable that UK property, works of art and luxury items generally become for overseas buyers. For foreign shoppers, the effect makes the UK a spending haven, boosting tourism on the way.
So, how rich are the wealthy? And where are they to be
‘Gold has risen from £171 per ounce at the start of 2000, to over £1,200 today’
found? Despite a darkening economic outlook, high wealth accumulation appears constant. The global population of Ultra-High Net-Worth Individuals (UHNWI), comprising people with investable assets of at least $30 million, might constitute only 0.003% of the world’s total population, but it holds approximately 13% of the world’s total wealth. The UHNWI population is forecast by wealth data specialists Global Data Wealth Insight to rise by 22% over the next five years, meaning an extra 43,000 people will be worth more than US$30 million by 2023. This will take the number of UHNWIs worldwide to almost 250,000.
London has the largest population with 4,944, an increase of 582 over the last five years, the most of any city. New York has the highest concentration of billionaires, with 94. Growth in Asia is noticeable, with Asian cities holding six of the top ten spots in the wealth category.
The backdrop to all this is the increasingly footloose nature of wealth. Data from the Knight Frank Attitudes Survey indicates that 36% of UHNWIs already hold a second passport, up from 34% previously, with 26% planning to emigrate permanently, up from 21%. Enabling this is a growing number of citizenship and residency by investment schemes, with Moldova and Montenegro the latest to jump on the bandwagon in 2018.
Meanwhile Scotland, too, is attracting a fair share of high-end spending, from luxury experiences such as a stay at Gleneagles (£480 for bed and breakfast, or £780 for B&B plus a round of golf) or Trump Turnberry (£586 a night) to luxury country estates and rare whisky.
The Knight Frank Rare Whisky 100 Index, which tracks actual UK auction hammer prices, rose by almost 40% last year. The group predicted that prices in 2019 ‘would continue to harden for the right bottles from the right distilleries, as well as increased interest in more affordable bottles from those in the second tier’. The two recordbreaking sales last year were bottles of The Macallan distilled in 1926.
The intangible joy of luxury spending is pride of ownership and display. Tempting it may be in these scary Brexit times to open those Macallan bottles and calm the nerves with a wee dram. Best, surely, to lock it away in a reinforced glass cabinet – and hide the key.