London’s Rich Feel the Pinch as Caviar Prices Rise
An influx of rich Europeans to London is causing the cost of living for the ultra-wealthy to surge, a top private wealth management firm reported on Monday.
The price of "typical" luxury goods and services in London rose by 4.9 percent in the 12 months ending April 2013, more than double the 2.4 percent rate of general U.K. consumer price inflation, said Stonehage. The firm, which bills itself as "the leading European multi-family office for ultra-high-net-worth families and entrepreneurs", calculated the cost of living for its clients using its own Stonehage Affluent Luxury Living Index (SALLI).
A top-end Aston Martin featured as a "typical" car in the SALLI index, which consisted of six components: consumables, culture and entertainment, sports and recreation, housing and family, consumables and "investments of passion" such as cars, watches and jewelry.
Beluga caviar and foie gras featured in the consumables section, while more prosaic items such as private school fees, rental accommodation and private healthcare (encompassing Botox treatments) were also on the list.
"The increase in SALLI shows that consumer confidence among the ultra-wealthy in London has risen, following a surge of wealthy families to the capital including those from countries where relatively harsh tax conditions, together with economic and political pressure, are having a negative impact on their lifestyle," said Ronnie Armist, executive director at Stonehage Investment Partners, in a report on the findings.
Talk of tax hikes for the wealthy, coupled with public and political fury over recent tax evasion and bonus scandals have fueled concerns that Europe is becoming less hospitable for the rich. While the U.K. is far from immune, its position outside the euro zone, combined with London's status as the financial hub of Europe, mean it is viewed as a comparative oasis.
(View More: Taxes for Wealthy Top 100%)
'Investments of Passion' Fuel Luxury Inflation
The uptick in 2013's SALLI index, came after a 1.6 percent decrease in the previous year. "SALLI 2013 reinforces findings that ultra-high-net-worth inflation is much more volatile than CPI [consumer price inflation], tending to exceed standard inflation in good times and significantly fall short in times of downturn," said the report.
"With the economic recovery in London strengthening, the SALLI Index is likely to exceed CPI inflation in the short-to-medium term."
According to Stonehage, the surge in this year's luxury living costs was fueled predominately by a 14.8 percent jump in the price of "investments of passion".
"This rise… has been attributed to the falling value of the pound relative to the euro and the Swiss franc, combined with an increase in demand for sports cars and fashion items, particularly among consumers from the Middle and Far East. Improving stock market conditions have also left wealthy investors with more disposable income to spend on these luxury items," Stonehage said.
Meanwhile, prices in the culture and entertainment grew 4.2 percent, boosted by an uptick in the value of fine art. The art market has appeared unfazed by recent stock market gyrations and Sotherby's sold $165 million's worth of Impressionist and Modern art in London last Thursday, surpassing its best-case sales forecast.
(Read More: Art Buyers Unfazed by Falling Stocks-for Now)
While London is renowned for its expensive property market — the Financial Times reported earlier this year that houses in the capital's 10 most expensive boroughs are worth as much as the property markets of Wales, Scotland and Northern Ireland combined— Stonehenge found that the cost of ultra-high-end rental actually fell by 0.5 percent.
"The continued influx of overseas buyers, who are in the main absentee landlords, led to an increased supply of rental properties over the last year, thereby limiting the scope for rental growth," said the report, which took as Kensington and Chelsea as its benchmark home location.
(Read More: UK Property Price Rises Stoke Fears of New Bubble)
Stonehage's report came after the Financial Times reported on Sunday that the average pay of top bankers in both Europe and the U.S. dropped by 10 percent last year. In an analysis of the pay awarded to the heads of 15 major banks, only three — John Stumpf at Wells Fargo, Stuart Gulliver at HSBC and Brady Dougan at Credit Suisse — enjoyed pay rises.
—By CNBC's Katy Barnato