Real Estate

Ultra-rich the driving force in mega property deals

Private wealth takes over global property market
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Private wealth takes over global property market

Ultra-wealthy individuals are becoming an increasingly influential force in the world of real estate, acting as a critical source of capital for big-ticket deals in the sector, according to a new report by real estate services firm Savills and wealth intelligence provider Wealth-X.

"Global real estate is mostly residential and held by occupiers, but private owners are becoming more important in the world of traded investable property," said Yolande Barnes, director, World Research at Savills.

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"Since the 'North Atlantic debt crisis' of 2008, sovereign wealth funds, wealth management companies, private banks and family offices have stepped into the property deals that corporate bankers have deserted," she added.

In the world's leading cities, the willingness of private wealth to take the place of debt finance or to take a higher-risk development position often determines whether a deal goes through or is mothballed, Barnes said.

Of the $250 trillion global real estate industry - 72 percent or $180 trillion is owner-occupied residential property, while the remaining 28 percent is investable and regularly traded.

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The most regularly traded are commercial properties - retail, office and industrial - which are increasingly being bought by private vehicles and funds acting for high-net-worth individuals, family or consortia.

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Thirty-five percent or 6,200 of global deals above $10 million in 2012 were only possible because of private funding, according to Savills.

"In recent years there has been a tendency for ultra-high net worth individuals [UHNWIs] to focus on 'safe haven', trophy properties for capital growth and wealth preservation. In future, we anticipate that some will begin to seek more productive, long-term income-producing positions," Barnes said, noting that the best income returns are often found outside prime areas and in lower grade premises.

"UHNWIs will be competing more directly with institutional investors in future but, being more opportunistic and less constrained by formal criteria, are more likely to become pathfinders and pioneers than corporate investors are," she said.

For a pension fund or investment manager, the decision to invest in a property is often based on formal valuation methods that tend to look at annual performance and conventional measures of risk, which a private individual may eschew in favor of a longer-term view.

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According to Savills, offices continue to dominate the large deals followed by retail property - except in the Americas where residential apartments in purpose built blocks designed for letting are favored ahead of retail real estate. Industrial units and hotels, meanwhile, represent small asset allocations.

—By CNBC's Ansuya Harjani. Follow her on Twitter:@Ansuya_H