Investments in art, classic cars, jewellery, watches and luxury handbags give handsome returns to ultra high net worth individuals
An increasing number of Indian ultra-high net worth individuals (UHNWIs) are showing keen interest in passion-led investing, mainly consisting of art, jewellery, classic cars, watches and luxury handbags. Passion-led investing can be a diversification tool and an additional source of investment returns in the long run.
Around 11% of the investable wealth of Indian UHNWIs, whose consolidated net worth is at least $30 million, is invested in passion-led investments against the global average of 16%, according to Knight Frank’s The Wealth Report 2022. In fact, about 29% of Indian UHNWIs have spent more on passion investments last year.
Passion investing
In India, art was the most preferred investment by UHNWI, followed by jewellery, classic cars, watches and luxury handbags. In fact, luxury handbags and wine slipped from their earlier first position to fifth and seventh position, respectively. Globally, art topped the rankings followed by classic cars, jewellery, wine and watches. Art provided a return of 13% in a 12-month period ended December 2021 and 75% over 10 years, according to Knight Frank’s luxury investment index. Wine saw a 16% incremental value on investment, whereas rare whisky witnessed a 9% increase in value during the 12-month period. However, over a 10-year period, rare whisky continues to top the charts, rising a whooping 428%.
Shishir Baijal, chairman & managing director, Knight Frank India said, “The Indian UHNWIs have a fantastic appreciation towards investments of passion, where the consideration is beyond pure risk-and-return dynamics. With the world coming closer in this digital age, we expect this phenomenon to only grow stronger.”
Globally, the report highlights that the sale of non-fungible tokens (NFTs) linked to digital artworks is gaining a lot of interest. According to Christie’s, 75% of those investing in the category were new collectors, with an average age of 42. With Asian collectors also chasing NFTs, 2022 will see the continued rise of collectibles competing with sales of art.
While passion investing does not provide a regular income, investors may benefit from the capital appreciation. Investors must be careful about the authenticity of the collectibles and must have knowledge of them.
Real estate
On residential property, the report says 10% of India’s UHNWIs plan to buy a new home this year. Indian UHNWI prefer to invest in properties in the domestic market, followed by international markets of UK, UAE and the US. The report highlighted that on an average an Indian UHNWI owns 2.3 homes and 32% of the Indian UHNWIs have rented out their second homes during 2021.
The report says 29% wealth of Indian UHNWIs is allocated towards purchase of principal and second homes. Further, 22% of UHNWIs’ investable wealth was allocated towards direct purchase of commercial property (including rental property, offices, etc.) while 8% was allocated towards indirect purchase of commercial property (including REITs, funds, etc.).