New World Wealth’s 2020 SA Wealth Report records that there are approximately 38 400 millionaires or high net worth individuals (HNWIs) living in South Africa, each with net assets of US$ 1 million or more. While down from a high of 48 600 HNWIs in 2010, this figure still makes South Africa the largest wealth market in Africa and the 32nd largest worldwide in terms of total wealth held. Within this group 2 030 are multi-millionaires, each with net assets of US$ 10 million or more. There are also 92 centi-millionaires, with net assets in excess of US$ 100 million. There are five billionaires living in South Africa, each with net assets exceeding US$1 billion.
Key drivers of wealth creation are; strong safety and security, media freedom and neutrality, secure ownership rights, good economic growth, a well-developed banking system and stock market, low levels of government intervention, low taxation, ease of investment, and wealth migration into the country.
While South Africa has performed poorly on most of these indicators over the last decade and the number and net asset value of HNWIs has decreased, the country remains the largest wealth management centre in Africa and one of the 20 largest worldwide.
Johannesburg is home to the largest segment of South African HNW wealth. Of the US$ 636 billion in assets held by HNWIs in South Africa in 2019, a full US$ 243 billion is largely accumulated in Hyde Park, Sandhurst, Westcliff, Houghton, Bryanston, Saxonwold, Park Town, Atholl and Inanda.
Cape Town follows with a combined HNWI asset total of US$ 131 billion, concentrated in Clifton, Bantry Bay, Fresnaye, Llandudno, Camps Bay, Bishopscourt and Constantia. Durban, Umhlanga, La Lucia and Ballito are home to US$ 56 billion of HNWI’s assets.
Over the last decade South African HNWIs have been moving away from investing in real estate towards equities and alternatives.
Today, equities is the most popular asset class for HNWIs in South Africa, accounting for approximately 29% HNWI’s assets. Real estate is now second at 25%, followed by business interests at 20%, cash and bonds at 16%, alternatives at 8% and collectables at 2%. New World Wealth reports $ 84 billion of local South African assets under management as of December 2019.
The South African luxury sector generates revenue of approximately US$ 2 billion a year, making it the largest luxury market in Africa. Popular assets amongst this segment include; luxury cars, luxury clothing and accessories, luxury watches and luxury hotels, says Christelle Colman, managing director of Elite.
Colman attributes the phenomenal growth in South African HNWIs seeking to secure their assets to, “strong high-end asset accumulation amongst this segment despite the lacklustre economy, as well as heightened security concerns.”
Also, the fact that New World Wealth’s figures only record HNWIs with a net worth of US$ 1 million or more, there are, “many more HNWIs in South Africa who have acquired substantial fixed and movable private assets on credit,” explains Colman.
These wealthy individuals, while clearly not included in New World Wealth’s numbers, “still need to secure these assets as they remain responsible for financing them in the event of loss,” she adds.
The average South African HNWI currently holds around 20% of their wealth offshore, up 6% from a decade ago. Popular foreign investments for South African HNWIs include United States ETFs, US$ cash and second homes in the United Kingdom.
Despite the trend to offshore, Umhlanga and Ballito have been two of the fastest growing areas of South African HNW asset accumulation over the past decade.
Paarl, Franschhoek and Stellenbosch have also recorded large increases in the number of HNWIs over the same period. Another HNW hot spot is Plettenberg Bay. According to New World Wealth, the small town has over 100 homes valued in excess of R20 million. Knysna, George, Oudbaai, Hermanus, Wilderness, St. Francis Bay and Nature’s Valley are all also home to significant numbers of HNWIs and assets.
Looking ahead, South African HNWI’s key short to medium term concerns include the impact of Covid-19 on employment and wealth creation.
Load shedding and Eskom also feature prominently as concerns likely to negatively impact growth and wealth creation. There is also heightened concern around potential nationalisation of health care leading to wealth and skills flight. A key long-term risk for South African HNWIs remains personal and asset safety.
Managing risk in today’s increasingly complex local and global environments requires a manager with an ability to develop and support integrated risk management strategies for HNWIs.