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The impact of global migration of millionaires

A 2017 report by market research firm New World Wealth concluded that a record 82,000 millionaires moved to a new country in 2016, up 26% from 62,000 in 2015. The estimate is that approximately 100,000 millionaires will move country each year by 2018. A millionaire in this report is defined as those having at least US$1 million of assets less liabilities excluding the family home.

The number one destination is Australia with 11,000 millionaires moving here, followed by the USA with 10,000 millionaire immigrants and Canada with 8,000. United Arab Emirates and New Zealand fill spots four and five.

Interestingly the number one destination millionaires are leaving is France with 12,000 millionaires fleeing the country in 2016. The New World Wealth Report estimates that China ranks second.

What does millionaire migration mean?

There are estimated to be 13.6 million millionaires in the world. The 100,000 that are changing country is not a big percentage but it is worth thinking about what the net inflow of millionaires can do to a country, particularly one with a relatively small economy.

My analysis is based purely on scenarios I have put together with data that cannot be easily verify (see Table 1 below). I have assumed that most millionaires with net investable assets of US$1 million would live in a significantly above-average home, maybe worth US$2 to US$3 million. I have also assumed that millionaires who move to a new country, on average, have more than US$1 million of net investable assets, as ‘wealthier’ millionaires would have a higher propensity to move than the millionaires who barely ‘scrape’ onto the list. Some of these immigrants could have US$2 million, US$5 million or US10 million of net investable assets and would consequently want even bigger and better houses than those with ‘only’ US$1 million of net investable assets.

Now let’s assume that of the 11,000 immigrant millionaires that come to Australia, 60% go to Sydney, 30% go to Melbourne and the remainder go elsewhere. In Sydney as an example, 6,600 immigrant millionaires are arriving every year wanting to purchase a property worth say A$3-4 million. Those with significantly more net investable assets probably want to spend A$5-8 million on houses and those with greater amounts of assets want to spend A$10 million plus on a house. These millionaires are looking to spend a minimum of $26 billion per year on 6,600 high-end houses in Sydney. And according to New World Wealth, millionaires are looking to spend this much every year as each new batch arrives. The prediction is also that this number is rising dramatically.

The problem becomes obvious. Sydney does not have enough expensive houses to accommodate all these new millionaires, and it looks to be getting worse. Of course, the result is lots of little ‘bubbles’ all around the world in places where millionaire immigrants decide they are going to live.

What does all this millionaire migration say about a country’s underlying economy? Clearly, the property sector and all ancillary services associated with property would be performing well. Of course, it does not necessarily follow that other parts of the economy benefit equally. You could even have extreme situations where those parts of the economy that benefit from millionaire inflow do well and other parts of the economy could go backwards.

Income inequality and the economy

Another way to think about millionaires is as the 1 percenters or the 0.1 percenters (see table below). In 1929, the top 1% of pre-tax income earners accounted for roughly 24% of all pre-tax earnings. This fell to 8.9% in 1976 but is once again at record levels of around 25%. The top 1% of earners in the world account for around a quarter to a third of all earnings and consumption in the world. This small 1% group and the even smaller 0.1% group have a disproportionate and large effect on the world economy. This small group of people also has a disproportionate effect on particular areas within our economy which may not translate to the greater economy.

The millionaire immigrant and the 1 percenters are creating bubbles around the world, especially in property in cities like Sydney, Vancouver, Auckland, Hong Kong and London. When we see such large demand and supply imbalances, we should consider the underlying factors creating these distortions. In small economies, these distortions are not necessarily a sign of the strong performance of the underlying economy.

Rather than conclude with a note of caution, our immediate problem is that we need to come up with a solution to satisfy this year’s and next year’s millionaire immigrant requirements!

 

Karl Siegling is Portfolio Manager at Cadence Capital.

6 Comments
Frank
June 01, 2017

Good effort to analyse and interpret but obvious problems with data integrity (eg probably a lot of double-counting of the same money recycled several times to get SIV entry into Australia, probably lots more hidden money not counted).

Romano Sala Tenna
June 01, 2017

Great piece Karl - original data and thinking.
It may also be worthy of considering the impact on other sectors and indeed the wider economy

SMSF Trustee
June 01, 2017

This is a rather narrow view of 'the impact' of these migrations. EG, there are smaller countries, like Mauritius, that actively encourage wealthy migration as a means of bringing consumer demand into their economies. That's what I was expecting when I saw an article on 'the impact of global migration'.

Perhaps the heading should be changed to "the impact on Sydney house prices in wealthy suburbs of millionaire immigration".

Peter
June 01, 2017

Here is a thought which would put downward pressure on Sydney's property bubble. How about banning all new immigrants from buying existing properties unless they are residents of Australia for at least 5 years or they are or become citizens?

They can of course purchase new residential property thus adding to supply, or choose to rent.

Ian
June 01, 2017

How about putting an end to the great Ponzi scheme called immigration entirely?

Chris
June 01, 2017

Wouldn't work; the properties that the article refers to that millionaires are buying are NOT those that the 'poor old first homebuyer as a young couple with a baby' would buy.

I would guess that the properties that other migrants (who aren't as well off) are buying are split between established and new properties.

And why five years ? Why not 10 or 15 ? Seems pretty arbitrary to me. And if they rent, does that deny the same 'poor old first homebuyer as a young couple with a baby' from renting a place ? You've just shifted the problem, not solved it.

We need migration because as Michael Pascoe said recently, the migrants are the ones who are bold, driven and the brightest minds....they are the ones who open businesses and employ people, they're the ones with skills (and capital) that we need.

 

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