South Africa 2019

1.1 What is this Report About?

This report covers SA wealth trends over the past decade, with projections for the next 10 years. The following table breaks down the various wealth bands that we look at in this report.

Wealth group

Billionaires

Definition

Those individuals with wealth of US$1 billion or more.

Centi-millionaires Those individuals with wealth of US$100 million or more.

Multi-millionaires Those individuals with wealth of US$10 million or more.

Millionaires (HNWIs)

Mass Affluent

Source: New World Wealth

Those individuals with wealth of US$1 million or more.

Those individuals with wealth of over US$100,000.

1.2 Notes and definitions

 “Wealth” refers to the net assets of a person. It includes all their assets (property, cash, equities, business interests) less any liabilities.

 All the growth rates and figures in this report are in US$ terms.

 Stats mentioned in this report are from New World Wealth unless otherwise stated.

 For the purposes of this report, the “review period” relates to the years 2008 to 2018.

 For the purposes of this report, the “forecast period” relates to the years 2018 to 2028.

Table 1: South Africa: HNWI wealth band definitions

1.3 Why do we compile an SA wealth report?

We consider wealth to be a far better measure of the financial health of an economy than GDP. Reasons for this include:

 In many developing countries, a large portion of GDP flows to the government and therefore has little impact on private wealth creation.

 GDP counts items multiple times (for instance, if someone is paid $100 for a product/service and they then pay someone else that $100 for another product/service, then that adds $200 to a country’s GDP, even though only $100 has been produced at the start).

 GDP disregards income levels in a country.

 GDP ignores the efficiency of the local banking sector and the local stock market at retaining wealth in a country.

 GDP largely ignores the impact of property and stock market moves. These two factors obviously have a massive impact on wealth.

 GDP is quite a static measure - it tends to only move slightly year on year. As a result, it is not a great gauge of the performance of an economy.

Wealth figures, on the other hand, do not have any of these limitations, making them a far better gauge of the financial health of an economy than GDP figures.

Wealth Sector Fundamentals

2.1 Regional landscape

There are around 57 million people living in South Africa. Johannesburg (including Sandton) is the economic powerhouse of South Africa, accounting for over 20% of the county’s GDP.

Rank City

State/Province

1 Johannesburg (incl. Sandton) Gauteng

2 Cape Town Western Cape

3 Durban (incl. Umhlanga) KwaZulu-Natal

4 Pretoria Gauteng

5 Port Elizabeth Eastern Cape

Source: New World Wealth

Source: CIA Factbook

Table 2: South Africa: Cities ranked by GDP contribution, 2018

Figure 1: South Africa: Map of country

2.2 Economic review

South Africa is the 34th largest economy in the world (measured by current GDP)

Financial services is the largest domestic sector, accounting for around 20% of South African GDP, followed by manufacturing (13%) and basic materials (11%). ‘Basic materials’ includes mining (8% of GDP) and agriculture (3%). Notably, mining’s contribution has fallen from 21% of GDP in 1970 - source: Stats SA.

The country’s main export partners over the past year were: China (16% of exports), the United States (8%), the UK (7%) and India (7%). Major exports include: cars & trucks, gold, diamonds, platinum, coal, iron ore and ferroalloys - source: Observatory of Economic Complexity.

The South African economy performed moderately over the past 10 years South African US$ GDP per capita rose by 7%, from US$5,700 in 2008 to US$6,100 in 2018 (estimate for 2018) It was up and down during the period - it peaked at US$7,900 in 2011 - source: Worldbank.

2.3 Benchmarking South Africa’s Wealth in Context

2.3.1 World statistics

Worldwide stats (for Dec 2018):

 Total private wealth held worldwide amounts to approximately US$204 trillion.

 The average individual has net assets of around US$27,000 (wealth per capita).

 There are approximately 14 million HNWIs in the world, each with net assets of US$1 million or more.

 There are approximately 560,000 multi-millionaires in the world, each with net assets of US$10 million or more.

 There are approximately 25,000 centi-millionaires in the world, each with net assets of US$100 million or more.

 There are 2,140 billionaires in the world, each with net assets of US$1 billion or more.

2.3.2 Distribution of wealth in South Africa

South Africa stats (for Dec 2018):

 South Africa is the largest wealth market in Africa and the 31st largest worldwide

 Total private wealth held by people living in SA amounts to approximately US$649 billion This refers to the private wealth held by all the individuals living in the country. It includes all their assets (property, cash, equities, business interests) less any liabilities. We exclude government funds from our figures. Around US$275 billion (42%) of this total is held by HNWIs.

 The average South African individual has net assets of around US$11,500 (wealth per capita), which is the 2nd highest level in Africa, behind Mauritius.

 SA is home to approximately 39,200 HNWIs, each with net assets of US$1 million or more.

 SA is home to 2,070 multi-millionaires, each with net assets of US$10 million or more.

 SA is home to 94 centi-millionaires, each with net assets of US$100 million or more.

 SA is home to 5 billionaires, each with net assets of US$1 billion or more.

The following table summarizes how major SA wealth drivers have performed over the past 10 years in US dollar terms.

As is evident, South African US$ based wealth was negatively influenced by a significant depreciation of the Rand against the US dollar during the period. Local residential property prices were also down during the period (when measured in US$ terms).

Sources: New World Wealth, EIU, The Economist, Worldbank

Table 3: South Africa: Performance of key wealth drivers (US$ terms), 2008 - 2018

2.4 Wealth trends in South Africa

2018 performance

2018 was a poor year for South Africa - total private wealth held by people living in the country declined by 10% from US$722 billion in 2017 to US$649 billion in 2018.

This drop was facilitated by a weakening local currency - the US$ exchange rate went from R12.30/US$ at the end of 2017 to R14.40/US$ at the end of 2018. The JSE all share index was also down significantly during the year (by 29% in US$ terms).

Review period performance (2008 - 2018)

Performance over the past 10 years was moderate with total private wealth held by people living in the country rising by 13% from US$575 billion in 2008 to US$649 billion in 2018

SA’s performance was negatively impacted by:

 A declining currency - the Rand depreciated significantly during this period from R9.30/US$ at the end of 2008 to R14.40/US$ at the end of 2018.

 A sluggish local property market (see prime property index section)

 The ongoing migration of wealthy people out of the country (see HNWI migration section)

SA’s performance was positively impacted by:

 The JSE all share index, which was up by 42% during the 10 year period (in US$ terms).

 Strong growth in the local professional services sector (law firms, consultancy firms).

 The MSCI World Index (global equity market index), which was up by over 120% during the 10 year period (in US$ terms). Many people living in South Africa have large foreign equity holdings so this has a positive impact.

It should be noted that if one goes back one extra year, to 2007 (just before the global financial crisis) then the growth rate is much worse - total SA wealth stood at US$670 billion in 2007, so wealth is down since then.

Forecast period performance (2018 - 2028)

Solid wealth growth is expected over the next 10 years. SA wealth is forecast to grow by 30% to reach around US$844 billion by 2028.

2.5 South Africa’s wealth scorecard and growth prospects

Despite being only the fifth-largest country in Africa in terms of population, South Africa is by far the richest country on the continent.

Notably, South Africa has over twice as many millionaires (HNWIs) as any other African country. Things that attract and keep HNWIs in SA include:

 Lifestyle aspects: climate, wildlife, beaches, weather and scenery.

 Good private schools.

 English speaking country. Most HNWIs worldwide know English as the first or second language.

 Well established luxury areas (Camps Bay, Sandton, Umhlanga etc.)

 A relatively good private healthcare system (when compared to other emerging markets).

 Top class shopping centers (examples: Sandton City, Gateway, Montecasino and V&A Waterfront).

 Luxury food stores such as Woolworths, which appeal to wealthy consumers.

Going forward, South Africa has strong fundamentals for wealth growth including:

 A well-developed wealth management, fund management and banking system.

 A large financial media which helps disseminate reliable information to investors. This sets South Africa apart from most other African markets.

 One of the 20 biggest stock exchanges in the world. Also, the JSE has been one of the fastest growing stock markets worldwide over the past 25 years (in terms of market cap growth).

Notwithstanding this, there are several risks facing SA going forward including:

 Loading shedding and Eskom - the troubled power utility has a massive amount of influence over South Africa

 Safety concerns - violent crime is probably South Africa’s largest problem. Notably, safety is one of the key drivers of wealth growth in a country.

 Threats of land redistribution without compensation - this could negatively impact on residential property prices, which could in turn lead to big problems for local banks (as most banks have large mortgage debt books).

 Possible nationalization of the healthcare sector - this could damage the private healthcare system, which could cause large numbers of wealthy and middle class people to leave the country.

2.6 Growth factor correlation

As reflected below, SA wealth growth is linked to a number of factors including the country’s GDP, the local real estate market and the local stock market. Note: all indices are in US$ terms.

Figure 2: South Africa: Growth factor correlation, 2008 - 2018

3

The wealthiest cities in South Africa

The following table ranks South African cities by total wealth. Note: “Total wealth” refers to the private wealth held by all the individuals living in each city/area. It includes all their assets (property, cash, equities, business interests) less any liabilities.

Table 4: South Africa: City wealth breakdown, 2018

Note: HNWIs numbers rounded to nearest 100. Only includes people living in each area (residents). Figures for Dec 2018

Source: New World Wealth

Notes:

 Johannesburg: Our figures for Johannesburg include Sandton.

 The Garden Route: Stretches from Mossell Bay to Storms River on the South Coast. Notable towns on the route include: Plettenberg Bay, George, Oubaai, Knysna, Wilderness and Mossell Bay.

 The Whale Coast: Area between Cape Town and the Garden Route. Notable towns on the Whale Coast include: Hermanus, Rooi Els, Kleinmond, Gansbaai, Pringle Bay and Bettys Bay

 The Sunshine Coast: Area around Port Elizabeth. Includes: Port Elizabeth, Kenton, St Francis Bay, Grahamstown and Port Alfred.

The following table lists these same areas by 10 year wealth growth.

As reflected, Durban, Ballito & Umhlanga is the fastest growing wealth market in SA, with wealth held in the area rising by 25% over the past 10 years. Paarl, Franschhoek & Stellenbosch and the Whale Coast also performed well (mainly due to a trend of retiring HNWIs moving there).

The two main wealth centers of Johannesburg and Cape Town both performed relatively poorly. Cape Town real estate prices were harmed by the ongoing drought, whilst Johannesburg lost a large number of HNWIs to other parts of the country.

Table 5: South Africa: City performance, 2008 - 2018

Note: Only includes the wealth of people living in each area (residents)

Source: New World Wealth

4 HNWI trends in South Africa

The demographic details in this section are based on a sample of approximately 5,000 SA HNWIs from the New World Wealth HNWI database.

4.1 Industry breakdown

The following table examines the top sources of wealth for South African HNWIs. As reflected, financial & professional services is the main industry from which South African HNWIs have acquired their wealth. Real estate is also a big one.

Notes: Financial & professional services includes: banks, law firms, consultancies and fund managers

Basic Materials includes: mining, farming, chemicals and oil & gas.

Diversified includes mixed sectors, aswell as smaller sectors such as security and education.

Source: New World Wealth

Table 6: South Africa: HNWIs – Distribution by industry, 2018

4.2 Educational background

The following table examines the most common degrees and certifications held by South African HNWIs. As reflected, a very large portion of SA HNWIs studied law.

Note: Refers to the last degree/certification achieved by the HNWI.

Source: New World Wealth

The following table examines the level of education of HNWIs in SA.

Table 7: South Africa: HNWIs – Distribution by area of study, 2018

Table 8: South Africa: HNWIs – Distribution by level of education, 2018

The following table provides a breakdown of the top universities for producing South African HNWIs.

Note: Refers to last university attended by the HNWI.

Source: New World Wealth

4.3 Work title breakdown

The following table provides a breakdown of the work titles of HNWIs living in South Africa

Table 9: South Africa: HNWIs – Distribution by university, 2018

Table 10: South Africa: HNWIs – Distribution by work title, 2018

4.4 Top suburbs for the super-rich

The following two tables provide a breakdown of the top suburbs for super-wealthy South Africans to live. Note: The figures in this table only include resident multi-millionaires that live in these suburbs - the likes of Camps Bay, Clifton, Bantry Bay, Fresnaye, Llandudno and Seapoint are also popular holiday home (second home) hotspots for the wealthy.

Table 11: South Africa: Top Cape Town suburbs for the super-rich, 2018

Note: Rounded to nearest 10. Only includes people living in each area (residents)

*incl. Higgovale, Oranjezicht, Tamboerskloof and V&A Marina.

Source: New World Wealth

Table 12: South Africa: Top Johannesburg suburbs for the super-rich, 2018

Note: Rounded to nearest 10. Only includes people living in each area (residents)

Source: New World Wealth

4.5 Spotlight on billionaires

South Africa is home to five billionaires (each with net assets of US$1 billion or more).

It should be noted that an additional 9 South African born billionaires have left the country and are therefore no longer included in our figures (i.e. we only include people that actually live in South Africa). So, in total 14 South African born individuals could be classified as billionaires.

Note: we do not give out the names of these individuals. Our HNWI database is purely used for market research purposes.

4.6 HNWI migration trends

Based on our estimates, around 3,000 HNWIs have left SA over the past 10 years. Most of these individuals have gone to the UK, Australia and USA. Switzerland and Portugal are also popular destinations.

Sources include:

 Investor visa program statistics in each country.

 Regular interviews with HNWI intermediaries (migration experts, second citizenship platforms, wealth managers).

 Tracking of HNWI movements in the media and tracking of HNWI property purchases.

Note: see our ‘Global Wealth Migration Review’ for more information on wealth migration trends worldwide.

4.7 Top hobbies for the wealthy

Golf is currently the most popular pastime for HNWIs in SA. Art collecting and cycling also feature high on their list. Notably, over the past few years, hobbies such as cycling, watch collecting, fly-fishing and car collecting have become more popular among SA’s wealthy

Spotlight on golf:

South Africa is home to some of the best golf courses in the world, including: Fancourt Links, Sun City (Gary Player CC) and Leopard Creek. Golf has always been a popular sport for SA HNWIs, especially retired HNWIs.

Golf estate living is also popular in SA, with many wealthy people choosing to live on exclusive golf estates such as Zimbali and Fancourt. Interesting, golf estate living is also now becoming popular in other African countries such as: Mauritius, Kenya, Egypt and Nigeria.

Spotlight on fly-fishing:

Fly-fishing is growing in popularity as a hobby for the wealthy in SA and worldwide. In South Africa, popular fly-fishing spots include: the Umzimkulu River (Underberg), the Mooi River (Kamberg) and several rivers and dams in Dullstroom.

Note: please see collectables section for more information on art, classic cars and watches.

5 Luxury sector in SA

The SA luxury sector generated revenue of approximately US$2.1 billion in 2018, down slightly from the previous year. This figure includes: luxury cars, luxury clothing & accessories, luxury watches, private jets, yachts and luxury hotels & lodges. Luxury hotels are the largest component.

Recent trends:

 Luxury car sales in SA were down in 2018 compared to the previous year. However, the luxury SUV space is still performing well - Porsche Cayenne, Range Rover, Mercedes GLE etc.

 The SA luxury hotel sector also performed poorly in 2018 The ongoing water shortage in the Western Cape continues to be a concern for Cape based hotels.

5.1 Luxury cars

Luxury car brands with dealerships in SA are listed below, ranked by SA revenue.

Table 13: South Africa: Top selling luxury cars, 2018

Brand ranked by SA revenue

Dealership locations

Porsche Sandton, Cape Town, Umhlanga

Ferrari Sandton, Cape Town, Umhlanga

Bentley Sandton

Rolls Royce Sandton

Aston Martin Sandton, Cape Town

Mclaren Sandton, Cape Town

Lamborghini Sandton, Cape Town

Sources: New World Wealth, NAAMSA

Luxury SUVs are especially popular in SA. Reasons for their popularity include:

 High road clearance. SUVs handle potholes and bad roads better than luxury sedans and sports cars.

 Safety aspects.

 Space for children.

 Useful for holidays – off road, game reserves etc.

Some of the more popular SUVs for SA HNWIs are listed below, ranked by price.

Rank by price Model

1 Rolls Royce Cullinan

2 Bentley Bentayga

3 Lamborghini Urus

4 Range Rover Autobiography

5 Porsche Cayenne Turbo

6 Mercedes GLE

7 BMW X6

8 Range Rover Velar

9 Volvo XC90

10 Jaguar F-Pace

Source: New World Wealth

The new Range Rover series (Velar, Vogue and Autobiography) is particularly popular among SA HNWIs.

The Rolls Royce Cullinan, Bentley Bentayga and Lamborghini Urus were all just released in the past year or so. Aston Martin and Ferrari also plan to release SUVs soon - the Aston Martin DBX is due in 2020 whilst the Ferrari Purosangue is due in 2022.

Table 14: South Africa: Popular SUVs for HNWIs, 2018

5.2 Luxury brand stores

A large number of exclusive brand stores were put up in SA between 2002 and 2007 during the global consumer boom period. Since then growth in this sector has slowed. Notable luxury brands with stores in SA are listed below. Most of these stores are based in exclusive shopping centers including: Sandton City and Hyde Park in Johannesburg, the V&A Waterfront in Cape Town and Gateway in Umhlanga

Table 15: South Africa: Luxury brand stores, 2018

Source: New World Wealth

The following luxury brands are likely to open brand stores in SA over the next decade.

Table 16: South Africa: Upcoming luxury brand stores,

Brand (alphabetical) Specialty

Berluti Mens shoes

Christian Louboutin Womans shoes

Hermes Clothing & accessories

Mulberry

Source: New World Wealth

5.3 Other luxury stores

Clothing & accessories

There are also a number of other SA stores that stock luxury items. Notables are listed below.

Source: New World Wealth

2018

Table 17: South Africa: Other luxury stores, 2018

5.4 Local luxury brands

The South African luxury goods market is dominated by foreign brands. However, there are a few well-known local brands that also make luxury and semi-luxury goods. They include:

 Ardmore Ceramics

 Avoova

 Carrol Boyes

 RainAfrica (bath & grooming products)

 Robertson & Caine (boat builders)

We expect this sector to grow strongly over the next 10 years.

5.5 Luxury hotels

A large portion of SA luxury sector revenue comes from luxury hotels and lodges.

Major SA destinations for wealthy people include: Kruger Park area, Cape Town, Umhlanga and the Garden Route.

South Africa is home to a large number of top-end hotels. Our top picks include: the 12 Apostles Hotel & Spa, the Lost City, the Mount Nelson, the Beverley Hills Hotel, the Oyster Box and Ellerman House. Most of these hotels are located in Cape Town and Umhlanga.

Our top game lodge picks include: Ngala Tented Camp, Savanna Lodge, Londolozi, Bushmans Kloof, Lion Sands and Singita Ebony Lodge. With the exception of Bushmans Kloof, all of these lodges are located in the Greater Kruger Park area (which includes Sabi Sands and the Timbavati).

Note: See our annual hotel ratings for more information on the top luxury hotels and lodges in SA.

5.6 Luxury food stores & restaurants

Although not included in our figure of US$2.1 billion, luxury food is sometimes included as another luxury item.

Luxury food retailers

This sector is well developed in SA, especially when compared to the rest of Africa and other major emerging markets such as India and Brazil. However, one company dominates the local market, namely, Woolworths.

Woolworths is modeled on and part-owned by Marks & Spencer in the UK.

Other luxury food stores in SA include:

 The Bread Basket

 Jacksons Real Food

 Thrupps

Top-end restaurants

South Africa is home to a large number of top-end restaurants (that rival the best in the world). Our top picks include: La Colombe in Cape Town, Cleopatra Mountain Farmhouse in the Natal Midlands, Tortellino D'Oro in Johannesburg, Café Bon Bon in Franschhoek, Le Petit Colombe in Franschhoek and Emily Moon in Plettenberg Bay.

Notably, Franschhoek is considered to be the “fine food capital” of South Africa with over 20 highly rated restaurants in the small town

Collectables are a growing segment in SA. Collectables include any luxury item that holds its value reasonably well over time. Prominent examples include: art, classic cars, top-end watches, fine wine and stamps. Note: Collectables do not include yachts, private jets and new cars as these items are unlikely to hold their value.

Art

The global top-end art market is valued at around US$75 billion. African art accounts for around US$1 billion of this, with US$460 million held in South Africa specifically. Leading SA artists (in terms of the value of their paintings) include:

 JH Pierneef

 Irma Stern

 Maggie Laubser

 Alexis Preller

 Gerard Sekoto

 Vladimir Tretchikoff

 Sydney Kumalo (sculpture)

 William Kentridge

 John Meyer

 Anton van Wouw (sculpture)

Irma Stern is currently the most valuable South African artist. Her paintings can fetch up to US$2.5 million (R35 million) each, with an average price of around US$350,000 (R5 million) per painting.

The majority of major art galleries are located in Johannesburg, Cape Town, Pretoria and Stellenbosch. Major dealers include: Strauss & Co, Stephan Welz and Aspire Art.

According to our in-house indices, South African fine art prices have risen by 33% over the past 10 years (in US$ terms). Global fine art prices have risen by 18% over the same period.

Wheels

The global classic car market is valued at around US$5 billion. According to our in-house indices, classic car prices rose by a strong 150% over the past 10 years (in US$ terms), making it the best performing investment class for wealthy people globally. Local classic car auctions take place in Johannesburg, Cape Town and Knysna on a regular basis.

Popular classic cars for wealthy car enthusiasts in SA are listed below (ranked by price in US$).

 Mercedes Gullwing 300sl (1950s): $1 900 000

 Porsche 959 (1980s): $1 500 000

 Ferrari F40 (1990s): $1 400 000

 Aston Martin DB4 (1950s): $1 400 000

 Aston Martin DB5 (1960s): $1 100 000

 Ferrari F50 (1990s): $1 100 000

 Lamborghini Miura (1970s): $800 000

 Lamborghini Countach (1980s): $500 000

 Ferrari Dino (1970s): $260 000

 Jaguar XK140 (1950s): $130 000

 Jaguar E Type (1960s): $120 000

 Ferrari 328 (1980s): $100 000

 Ferrari Testarossa (1980s): $80 000

 Ferrari 348 (1990s): $70 000

 Ferrari 355 (1990s): $70 000

 Ferrari 308 (1980s): $60 000

Note: US$ price above if car in good and working condition.

Watches

Popular watch brands for SA collectors include the likes of: Patek Philippe, Breguet and Vacheron Constantin. Vacheron Constantin is considered to be the oldest watch maker in the world - it was founded in 1755.

Patek Philippe, which was founded about 100 years later (in 1851) tends to achieve the highest prices, both for classic watches and new watches.

7 Investment trends of SA HNWIs

7.1 Asset allocations

We define wealth as the net value of assets, including both financial holdings and tangible assets. As such, and in the interest of providing the most comprehensive analysis of the wealth of South African HNWIs, we have calibrated the total wealth held by HNWIs across five major asset classes: alternatives, real estate, cash & bonds, equities and business interests. Note: this information is gathered via regular interviews with intermediaries (wealth managers and fund managers).

At the end of 2018, equities was the largest asset class for HNWIs in South Africa (30% of total HNWI assets), followed by real estate (28%), business interests (20%), cash & bonds (15%), and alternatives (8%)

Figure 3: South Africa: HNWI asset class composition, 2008 - 2028F

Source: New World Wealth

Note: “Business Interests” refer to local holdings in businesses that HNWI is or was actively involved in.

Source: New World Wealth

As reflected, equities recorded the strongest growth over the review period, whilst real estate and cash were the worst performing asset classes.

Table 18: South Africa: HNWI asset allocations (%), 2008 - 2028F

7.2 Real estate

SA HNWIs decreased their real estate allocation during the review period from 33% in 2008 to 28% in 2018.

Note: “real estate allocation” includes all residential and commercial property held by the HNWIs, including their primary residence.

7.3 Cash and bonds

Money market

The benchmark interest rate (repo rate) is set by the South African Reserve Bank. The rate stood at 6.75% at the end of 2018, down from 11.5% at the end of 2008 It was up and down during the period – it dipped as low as 5.0% in 2012.

HNWI allocation

SA HNWIs decreased their cash & bonds allocation during the review period, from 18% in 2008 to 15% in 2018, as they moved more of their assets into equities

7.4 Equities Market

South Africa's main securities market is the Johannesburg Stock Exchange (JSE), which is the 19th largest exchange in the world with a market cap of approximately US$900 billion at the end of 2018 In US$ terms, the valuations of the JSE all share index were up by a healthy 42% during the review period (2008 to 2018) The top performing local equities during this period include the likes of: Naspers, Discovery and PSG.

The worldwide equity market also performed well during this period (the MSCI World Index was up by over 120%).

HNWI allocation

During the review period, local HNWIs substantially increased the share of their assets allocated to equities from 23% in 2008 to 30% in 2018

7.5 Analysis of Foreign Investments

There was a movement of funds offshore during the review period. At the end of 2018, South African HNWIs held 17% of their wealth offshore compared to 13% in 2008

This % is expected to rise to 24% by 2028, fueled by increased allocations to foreign equities in particular

8 The Wealth Management Sector in South Africa

8.1 Wealth managers & private banks

South Africa is the largest wealth management center in Africa and one of the 20 largest worldwide, with local assets under management (“AuM”) of approximately US$85 billion at the end of 2018 Major locally based players are listed in the table below, ranked by locally sourced AuM. As reflected, Investec is the largest wealth manager in the country, followed by RMB

Note: Ranked by 2018 year end AuM.

Source: Annual Reports, Investor presentations

Typically, wealth management companies in SA target individuals with over US$700,000 (R10 million) in investable assets. They also target young professionals who are starting their careers (specifically lawyers and charted accountants). Services that are most in demand include: asset management services, financial planning and inheritance planning.

Table 19: South Africa: The largest wealth managers by local AuM, 2018

There are also a number of major foreign based wealth management companies with offices in South Africa. See list below. Notably, Julius Baer just entered the SA market in 2018, whilst Credit Suisse just exited.

Global Base

Credo Group UK

Julius Baer Swiss

Stonehage Fleming UK

UBS Swiss

Source: New World Wealth

8.2 Family offices

Family offices are a fast growing wealth management segment in South Africa and throughout the world.

They traditionally provide a more customized offering than wealth managers and private banks. Services they offer include: managing household staff, property management, philanthropy coordination, managing family education, intergenerational transfer and legal and tax services, on top of the usual investment services.

Typically family offices are exclusively for family members and family related trusts, foundations, charities and venture capital companies

Single-family offices (SFO)

Single-family offices generally take the form of a private company that manages the investments of ultrawealthy individuals (normally with net assets of more than US$100 million) and their extended family. Typically, an SFO has a small team consisting of a lawyer, an investment specialist and an accountant.

Multi-family offices (MFO)

There are a significant number of families with between US$10 million and US$100 million in assets that do not have the economies of scale to establish stand-alone family offices. MFOs cater to these families and allow them to share administrative costs. Stonehage Fleming is a notable MFO with a presence in SA

Table 20: South Africa: Major foreign wealth management companies operating in SA, 2018 Company (alphabetical)

8.3

Best ways of contacting HNWIs

The best way of contacting HNWIs in South Africa is via their brokers. Therefore, one needs to build strong relationships with individual brokers in order to get exposure. Strong relationships with fund managers is also important as many funds deal directly with HNWIs.

Some of the more popular brokerage houses and fund managers for HNWIs in SA are listed below

Brokers:

 Alexander Forbes

 Investec

 Old Mutual

 Liberty Life

 PSG

Equity funds:

 Allan Gray / Orbis

 Coronation

 Prudential

 PSG

 Foord

Family offices, foundations and venture capital companies:

Another good way of contacting HNWIs is via their family offices, foundations and venture capital companies. In South Africa, around US$25 billion is tied up with venture capital companies and foundations that are linked to the wealthy. Normally only individuals with net assets of over US$10 million (R140 million) are wealthy enough to have their own foundations and/or venture capital companies.

9 Prime property index

Residential property performance

According to our in-house prime property indices, South Africa’s residential property market has performed poorly over the review period (2008 to 2018) with average prices declining by around 5% in US$ terms. It should be noted that the Rand depreciated significantly during this period from R9.30/US$ at the end of 2008 to R14.40/US$ at the end of 2018, so this obviously contributed to the decline.

Other possible reasons for the decline include:

 Increased utility bills (rates, electricity & water), which have increased by more than three times over the 10 year period. This has discouraged people from buying property and forced many people to downsize.

 Increased difficulty in getting mortgages following the global financial crisis. Bank and SARS approval often takes a long time (up to 6 months).

 Threats of land redistribution without compensation

 High transfer duties of up to 13%. Notably, for properties valued at R10 million and above, transfer duty exceeds R933,000 (which is very high compared to international norms).

 The ongoing drought in the Western Cape, which has hit the Cape Town residential market especially hard. The drought started in late 2015 and is still ongoing.

 New visa restrictions which have made it difficult for foreign buyers to stay in SA for more than 3 months at a time. This has deterred foreigners from buying second homes in SA.

Notwithstanding this drop, there are some notable residential segments in SA that have actually risen significantly in price over this period, some by up to 30% in US$ terms. They include:

 Homes on luxury residential estates such as Zimbali, Fancourt and Val de Vie.

 Luxury apartments - some of the top performing luxury apartment complexes in SA over the past 10 years include: the Pearls in Umhlanga and De Meermin in Plettenberg Bay. Notably, square meter prices in the Pearls in Umhlanga are now reaching similar levels to top apartments in Bantry Bay and Clifton in Cape Town.

Umhlanga has been the top performing residential market in SA over the past 10 years. This is possibly due to the fact that many foreigners and locals are now going on holiday to Natal instead of the Western Cape due to the Cape Town drought impact. There has also been an uptick in prices in surrounding areas such as Ballito, La Lucia and Zinkwazi.

The most exclusive areas in SA

What is the best way to determine the exclusivity of an area?

Option1: Price per square meter stats. Internationally considered to be the best way. However, this measure has some limitations, especially when it comes to valuating houses. This is due to the garden element (i.e. how do you value the garden?). The truth is price per square meter stats only work really well on apartments and some areas don’t have many apartments which makes this tricky.

Option2: The number of R20 million homes in area. Allows one to see how many mansions are in an area. However, this measure can be deceiving as areas that are mainly large houses (such as Sandhurst, Plettenberg Bay and Bishopscourt) tend to outperform areas that are mainly apartments (such as Umhlanga) as very few apartments are large enough to cost over R20 million.

We therefore look at both measures in this section.

9.1 SA square meter prices for suburbs and streets

On a quarterly and annual basis we review the most expensive streets and suburbs in SA.

Table 21: South Africa: Most expensive streets and suburbs, price per square meter, 2018

Note: Refers to the average price of a prime 200-400 square meter apartment/villa on street or in suburb Figures for Dec 2018. Translated at R14.40/US$.

Source: New World Wealth

9.2 Top hotspots for R20 million homes in SA

The number of R20m homes in a town or suburb can also be a good indication of its exclusivity. There are approximately 2,200 South African homes valued at R20 million or more (as of December 2018). Approximately 900 of them are in Cape Town, with around 480 in Johannesburg.

Table 22: South Africa: Most exclusive suburbs in Cape Town (R20m homes), 2018

Note: Figures rounded to nearest 10.

Source: New World Wealth

Table 23: South Africa: Most exclusive suburbs in Johannesburg (R20m homes), 2018

Suburb

Note: Figures rounded to nearest 10.

Source: New World Wealth

As reflected, the “Big 5 Atlantic Seaboard suburbs of Cape Town” (Camps Bay, Clifton, Bantry Bay, Fresnaye and Llandudno) account for most of Cape Town’s R20 million homes.

Table 24: South Africa: Most exclusive towns in South Africa (R20m homes), 2018

Note: Figures rounded to nearest 10. Includes houses, apartments and private wine farms.

Plettenberg Bay

Plettenberg Bay (otherwise known as “Plett”) is a small town on the Garden Route. After Johannesburg and Cape Town, it is the top location in SA for R20 million homes. Notably, Beachyhead Drive in Plett is considered to be the most expensive road in SA for residential property (outside of Cape Town).

Umhlanga

Umhlanga has been the top second home hotspot for wealthy Joburgers since the 1970s. Following the construction of Gateway shopping center in 2001, Umhlanga has also become a major business hub for wealthy residents to live and work. The apartments on Lagoon Drive in Umhlanga are some of the most expensive in the country.

Stellenbosch, Paarl and Franschhoek

These three areas are located next to one another. They combine to form one of the fastest growing areas in SA for HNWIs. Notably, a large number of retired HNWIs have moved to the area over the past 10 years. There are many private wine farms in the area owned by HNWIs that are worth well over R20 million. There are also several exclusive residential estates in the area including: Val de Vie, Pearl Valley, De Zalze, Domaine des Anges, Fransche Hoek Agricultural Estate and La Ferme Chantelle.

Knysna

Knysna on the Garden Route is one of the top retirement destinations for wealthy South Africans. It is also home to several notable luxury residential estates including: Pezula, Simola and Thesen Islands.

Ballito

Ballito is the “Luxury Residential Estate Capital of South Africa” - it is home to Zimbali, Simbithi, Brettenwood and Dunkirk Estate. There are also a number of exclusive estates under construction in the area For our purposes, Ballito includes Salt Rock, Shaka’s Rock and Sheffield Beach.

George

George is the largest town on the Garden Route and one of the top retirement destinations for wealthy South Africans. It is home to one of the top residential estates in the country, namely Fancourt.

Hermanus

Located on the Whale Coast, Hermanus is the main second home hotspot for wealthy Capetonians. It is also a popular retirement hotspot for wealthy people from Johannesburg and Pretoria.

Wilderness

Wilderness is a small town on the Garden Route. It is located around 5km east of George. It is home to some of the most spectacular beachfront houses in the country.

9.3 The next hotspots for R20 million homes in SA

The following ‘up-and-coming’ towns are expected to be the next hotspots for R20 million homes in SA:

Natures Valley

Natures Valley is a small town on the Garden Route. It is located about 30 minutes east of Plettenberg Bay. The forest and lagoon in the area is relatively untouched which appeals to nature lovers. Notably, no motor boats are allowed on the lagoon (it is a hotspot for canoeing). A number of large homes have started to go up in the area and several older homes have been renovated recently.

Zinkwazi

Zinkwazi, sometimes pronounced Nkwazi, is a small beach town on the north coast of KwaZulu-Natal. It has benefited from the construction of King Shaka International Airport in nearby La Mercy. It is less developed and has larger plots than nearby Ballito and Umhlanga.

Keurbooms

Keurbooms is a small village on the Garden Route. The town offers residents more privacy than nearby Plettenberg Bay.

9.4 Luxury residential estates

South Africa is home to a large number of luxury residential estates. We estimate that over 40% of South African HNWIs either live or have second homes on these estates. Reasons for their popularity include:

 Safety & security - access gate, private security personnel.

 Activities - gym, swimming pool, golf, horse riding, tennis.

 Lifestyle and community - parks, gathering places, children playgrounds, schools.

 Limited and controlled traffic - safer for children.

Recent trends in this space:

 Although the residential market in SA has come under strain over the past few years, houses/apartments on top-end residential estates have consistently outperformed the general market.

 There has been a rise in demand for retirement estates, wildlife estates and lifestyle estates over the past few years. Overall, there is a move away from traditional golf estates.

 Most developers are now creating small neighborhoods within the estates, as opposed to the old model where houses were spaced evenly around the entire property. The new model allows for more parkland and open spaces between the neighborhoods.

 A large number of residential lifestyle & golf estates have started to add luxury apartments onto their offerings. Previously, most residential estates had focused only on houses.

 Parkland estates with nice parks, birdlife, walks and trails are becoming more popular

Residential estates can be tricky to define. For our purposes, residential estates include: lifestyle estates, wildlife estates, golf estates, equestrian estates and parkland estates (i.e. themed estates).

Note: See our annual estate ratings for more information on the top residential estates in SA

10 Drivers of wealth growth

Based on our research, the top factors that encourage wealth growth in a country include:

 Strong safety & security - woman and child safety is particularly important.

 Media freedom and neutrality - it is important that major news outlets in a country are neutral and objective.

 Strong ownership rights - Zimbabwe offers a case in point as to what happens when ownership rights are stripped – once assets are taken away they tend to lose value as no one is willing to buy anything.

 Strong economic growth - economic growth is usually linked to wealth growth.

 A well-developed banking system and stock market - insures that people invest and grow their wealth locally. Also insures that GDP growth leads to wealth growth.

 Low level of government intervention – government tampering in the business sector creates large inefficiencies within an economy. Government owned enterprises and parastatals are also a problem.

 Low income tax and company tax rates - Dubai and Singapore are examples of the power that tax rates can have in encouraging business formation – both have very low tax rates.

 Ease of investment - barriers such as exchange controls inhibit wealth growth.

 Wealth migration - the migration of HNWIs to the country helps create wealth.

11 About the Sponsor / Author

AfrAsia Bank - Sponsor

Strategically based in Mauritius with a representative office in South Africa, AfrAsia Bank is continuously leveraging its African footprint and positioning itself as a boutique financial services provider. The Bank’s entrepreneurial approach helps to tailor innovative banking solutions for both local and international markets, by connecting Africa, Asia and the World using Mauritius as the gateway for investment.

AfrAsia Bank develops tailored financial solutions in four distinct business lines:

 Corporate Banking.

 Global Business Banking.

 Private Banking and Personal Banking.

 Treasury and Markets.

In addition to its anchor Mauritian shareholder, IBL, the largest conglomerate in the country, other strong strategic partners include National Bank of Canada, and Intrasia Capital (Singapore).

The Bank’s core banking and transactional capabilities are also complemented by its asset management arm, AfrAsia Capital Management Limited.

With an experienced team and regional foundations giving customers the reliability and trust of a global banking network, the Bank helps clients achieve their financial aspirations, all delivered with boutique agility and service. AfrAsia Bank is an award-winning bank who has bagged several awards from reputed institutions namely Euromoney, The Banker and EMEA Finance.

For more information on AfrAsia Bank please visit www.afrasiabank.com.

New World Wealth - Author

New World Wealth is a global market research group, based in Johannesburg, South Africa. We specialize in ratings, surveys, country reports and wealth statistics. We also provide management consulting and public relations services to our clients. Our research covers 90 countries and 150 cities worldwide.

Services on offer include:

 Ratings and surveys.

 Country, city and regional wealth statistics.

 Residential property surveys.

 Wealth migration studies.

 Management consulting.

 Custom research.

 Safety index.

For more information on New World Wealth please visit www.newworldwealth.com

Andrew Amoils

New World Wealth andrew@nw-wealth.com

+27 11 706 1185

www.newworldwealth.com

Suneeta Motala

AfrAsia Bank

Suneeta.Motala@afrasiabank.com

+230 403 5500 www.afrasiabank.com