Top-end South African properties contain large amounts of long-term luxury items, otherwise known as collectables.
The Western Cape is home to some of the most expensive wine property in the world, valued at more than US$80 000 per hectare, (source: Knight Frank).
“Collectables” include any luxury item that holds its value reasonably well over time. Examples include jewellery, classic cars and art which are owned by millionaires otherwise known as “high net worth individuals” (HNWIs) – these are individuals with net assets of US$1 million or more excluding their primary residences.
We look at the various types of collectables and examine how each of them has performed over the past few years – that is, performance between the end of 2007 (the peak before the global financial crisis) and 2013.
This enables us to determine how well these items have performed through the crisis.
Local art
New World Wealth (NWW) estimates that South African HNWIs held US$230 million worth of fine art in 2013.
The South African fine art market has boomed over the past decade and a half. Leading artists include Irma Stern, Thomas Baines, JH Pierneef, Alexis Preller, Pieter Wenning, Gerard Sekoto, Maggie Laubser and Hugo Naude. The value of these artists has risen appreciably – an Irma Stern painting that sold for US$20 000 in 1995 fetched over US$2 million in 2011.
There are also a large number of emerging South African artists that regularly fetch over US$10 000 per painting including Portchie, Isabel le Roux and Dimitrov.
The majority of major art galleries are located in Johannesburg and Cape Town and in holiday hotspots such as Stellenbosch, Knysna, Dullstroom and Plettenberg Bay.
Global art
According to NWW, the worldwide fine art industry was valued at more than US$60 billion in 2013.
Priced at R35 million, this exclusive boutique wine farm is selling through Pam Golding Properties Franschhoek Winelands. It offers a three bedroom Cape Dutch home with separate entertainment room and a large shed. Click here to view.
Globally, fine art prices declined by 9 percent between 2007 and 2013 (source: Artprice.com), a decline that would have been far greater had it not been for strong growth in the Chinese fine art market.
According to Artprice.com, the largest auction market in the world in 2013 was China with 35 percent of turnover, followed by the US with 33 percent, the UK with 17 percent, France with 4.5 percent, Germany with 1.7 percent and Switzerland with 1.3 percent.
Global fine art turnover in 2013 totalled US$12 billion, up over 13 percent on the figure from 2012. The “big two” Christies and Sotheby’s together accounted for over 55 percent of this.
Fine wine
The global fine wine market recorded tremendous growth between 2000 and 2010, with prices paid for certain vintages of Lafite Rothschild having increased more than tenfold.
As a result of this boom, portfolio managers that specialise solely in fine wine investments have begun to crop up and offer unique wine-denominated investments. Heavy buying by the Chinese in the Hong Kong market was the main driver of this growth.
However, fine wine’s performance over the past few years has been poor, which restricted index price growth for the 2007 to 2013 period to 6 percent (source: Liv-ex 100 index).
Wine property
The Western Cape is home to some of the most expensive wine property in the world, valued at more than US$80 000 per hectare, (source: Knight Frank).
These estates have become a popular investment for HNWIs, with many of the most well-known South African HNWIs having their own wine farms in the area.
These estates generally have Dutch-style houses and are an investment for many local and foreign HNWIs with the most exclusive of these estates located in Stellenbosch, Constantia (Cape Town) and Franschhoek.
Wheels
The auction at the Pebble Beach Concours d’Elegance in California is regarded as a key leading indicator for the worldwide collector car and luxury car markets.
The most recent auction held in August 2013 recorded sales of US$301 million (source: Hagerty Insurance). This surpassed last year's sales of US$265 million. A 1967 Ferrari 275 Spyder sold for US$27.5 million at the auction.
New World Wealth (NWW) estimates that South African HNWIs held US$230 million worth of fine art in 2013.
The world record was broken twice during 2013:
- A 1954 Mercedes Silver Arrow was sold by Bonhams at auction for US$29 million in July 2013.
- A Ferrari 250 GTO was sold for over US$50 million in October 2013 (private sale).
Over the 2007 to 2013 period, classic car prices rose by a strong 96 percent (source: HAGI Top index). Notably, the drop in prices in 2008 was smaller for classic cars than for art and fine wine which reflects the resilience of this type of investment.
Classic car auctions take place in Johannesburg, Cape Town and Knysna on a regular basis.
Other collectables
Other popular collectables for HNWIs in South Africa include jewellery, luxury watches, private jets, yachts, helicopters and private game reserves.
Private game reserves in particular have become a popular investment for South African HNWIs over the past decade. As a result of this boom, rare wild animals such as Buffalo, Roan Antelope, Sable Antelope and Rhino now sell for over US$20 000 per animal.
Ultra luxury men’s watches have also experienced rapid growth in South Africa recently with new shops such as Bellagio opening in Sandton City.
Some of the top selling brands include: Patek Philippe, Ulysse Nardin, Frank Muller, Vacheron Constantin, Roger Dubuis, Richard Mille and Breguet. All of these brands sell for a base price of over US$5 000 per watch.
HNWI insurance
Along with this rise in collectables, comes the increased risk of loss through theft or other means. As a result, insurance companies that focus exclusively on HNWIs have begun to enter the South African market, the largest of which is MUA.
Located 7 km east of Stellenbosch, Le Pommier Wine Estate on Helshoogte Road in Banhoek Valley is selling for R26.5 million through VIP Homes. Click here to view.
Warwick Scott-Rodger, head of brokers at MUA Insurances Acceptances, states: “We are finding that the ultra wealthy are certainly not holding back in showing their wealth, constantly spreading their creative thinking into investing in luxury brands that are often new to South African shores.”
He explains that this in turn cultivates a culture of spending large sums of money into solo assets that are unique, and often requiring a change in the way traditional insurance has been presented in the past, in order to withstand high single losses.
“When insuring the affluent individual, it is critical to appreciate that the principle of putting the client back in the position that they were before suffering a loss, is the absolute key to indemnity.
“There needs to be a comprehensive approach to establishing the true replacement value attached to such assets upfront, this often being quite a subjective task due to sentiment and the limited availability of such exclusive goods,” he points out.
A high net-worth individual often will hold tangible assets not only for the purpose of utility but a method of storing wealth, and in particular an investment avenue to maintain and expand on their personal fortunes.
This results in the outright need for a tailored policy of personal insurance to completely cover the specific exposures that the elite are faced with during their day-to-day living, according to Scott-Rodger. – Andrew Amoils
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