Text size

Citi Private Bank and the London-based real estate advisors, Knight Frank , just came out with their Wealth Report 2012, a study of the globe's ultra rich and where they are buying property. Consider it a global version of Penta's much-read annual list, Best Places for Second Homes. It makes for an interesting read.

According to Ledbury Research, there are 63,000 people globally in possession of $100 million or more in assets, with 18,000 centa-millionaires located in South East Asia, China and Japan. That compares with 17,000 in North America and 14,000 in Western Europe. The number of centa-millionaires rose 29% globally between 2006 and 2011, with the U.S. accounting for a 6% rise.

Applying their pencil scratching to regional GDP-growth projections for the coming years, the wealth researchers figure that by 2016, the U.S. will still have the most centa-millionaires on a country-by-country basis, with 17,100, but probably not for much longer after that. China, it is assumed, will in that short time double its number of centa-millionaires to 14,000. It's all, of course, about the globe's wealth-creation center of gravity shifting from somewhere in the mid-Atlantic to somewhere over in Asia. It's the ongoing and painful global restructuring we read about in the newspapers every day.

So Citi and Knight Frank pored over these new-wealth projections and asked themselves, what are the globe's main real-estate hubs today for the world's richest folk and what are these hubs likely to be in a decade or more from now? According to Citi and Knight Frank, these are the cities that currently "matter most" to the world's richest folk –

London New York Hong Kong Paris Singapore Miami Geneva Shanghai Beijing Berlin

In a decade from now, Citi and Knight Frank predict the most important cities to the super-rich will be:

London New York Beijing Shanghai Singapore Hong Kong Paris São Paulo Geneva Berlin

What gives? If so much wealth is being made in the emerging market economies, why do London and New York remain on top? According to the report's authors, "The most significant driving force of any city is its people. It is crucial to have a livable environment for increasingly mobile populations, and to attract a significant workforce. More than one-third of the people in New York and London are foreign-born. Despite their astonishing growth, Asian economic powerhouses fail to reach that level of cosmopolitan culture. New York or London will continue to top the indices, but only if they ensure their strong cultural offers are unmatched and maintain open immigration policies."

Partly true. Anyone who has recently tried to make their way through the thronged pavements of Piccadilly in London knows there's another, more important and less politically-correct answer for why certain cities in the West will remain top dogs. The reason is flight capital. The globe's rich aren't really moving to London or New York – they are fleeing their home countries and cities.

Any private banker will tell you, that as soon as a centa-millionaire in Moscow, Beijing or São Paolo makes their fortune, the first thing they do is figure out how they can ferret away large chunks of that wealth to countries that guarantee political and personal freedoms, have sound legal systems, a favorable tax environment, good security and good schools for their kids. Those last two items are not to be underestimated. When asked what was the most important factor drawing them to a city, 63% of the globe's super-rich said "personal security" and 21% said "education."

It's a no-brainer, really. Being wealthy in Russia or China or Colombia or Egypt comes at great personal risk. If a wealthy businessman falls afoul of politicians in any of these countries, or attracts the attention of gangsters, it's in the realm of very real possibilities that they will get a midnight knock on the door. Best to have a bolt-hole beyond the reach of the local thugs, political or otherwise.

Miami is, for example, currently one of the world's most important cities (ranked 6), precisely because it offers security and stability to Latin America's mega rich. That translates into a real-estate bonanza for Miami when the rest of Florida remains mired in the real-estate doldrums. "Miami, where prime property values rose 19% last year, is a good example of a location that experienced double-digit growth on the back of HNWI capital flight, favorable exchange rates, and value for money after a sharp fall in prices during the credit crunch," states the report.

And, of course, never to be underestimated is the tax regime of the host city-country. That's an important reason why London continues to keep its top berth. In a law passed in 2008, so-called "non-doms" (non-domiciled residents from another country) living in Britain, only pay U.K. taxes on the money they physically bring into the country; any of their wealth parked overseas is simply taxed at a flat 30,000 pounds ($48,000). This "flea-bite" tax for the mega rich, with literally hundreds of millions of dollars or pounds at stake, is now set to rise to 50,000 pounds for any non-dom resident in the U.K. for more than 12 years.

That sweet deal does not, of course, apply to Americans who are taxed on their worldwide income, whether parked domestically or abroad. But most other nations – including emerging nations – allow for that hairsplitting distinction. And that, in a nutshell, is why London remains on top.