There is a strong intention among high-net-worth-individuals (HNWIs) to return to experiential spending on leisure activities and travel, apart from a greater focus on areas that might enable them and their children to plan in the years ahead, such as health insurance, wellness, and education, says a new study.

HNWIs are also increasingly aligning their financial and investment decisions more closely with their personal values, says the third edition of Julius Baer’s Global Wealth and Lifestyle Report.

The report suggests that the Middle East has far greater potential for change for cities featured in the Index and it could be anticipated that Dubai could be joined by Doha or cities of Saudi Arabia in the future. This year, Dubai takes the 14th spot on the report’s Lifestyle Index as business activity in Dubai’s non-oil private sector economy showed a marked growth in the emirate’s travel and tourism sector, despite rising inflationary pressures.

Using its wide-ranging Lifestyle Index, Julius Baer tracks prices and consumer behaviour around the world to gauge the price inflation of a basket of goods and services representative of the high-net-worth-individual (HNWI) lifestyle in cities around the world. With this, investors can estimate the portfolio returns needed to preserve, or even grow, their purchasing power.

The report, centred on a basket of consumer goods and services, is reflective of the spending patterns of high-net-worth individuals. Analysing the price development of the basket in 24 cities around the world, the report highlights the changes in the cost of living. Europe, Middle East, and Africa (EMEA) remains the second most expensive region with four cities (London, Monaco, Dubai, and Johannesburg) in the top ten.

The Lifestyle Survey of HNWIs reveals regional differences in how optimistic respondents feel about their personal, professional, and financial futures.

In all regions, sustainability is a very, if not extremely, important consideration for most respondents. HNWIs generally want to promote sustainability through investments, which is why ESG plays an increasingly important role when it comes to investment decisions, the report said.

For the first time, the report also includes a Lifestyle Survey that asks HNWIs across the world about their consumption, spending, and investment habits. The results offer a deeper understanding of the lifestyle trends identified by the Lifestyle Index and support the findings with personal sentiments.

Mark Matthews, Head of Research Asia Pacific, Bank Julius Baer, stated: “While the world as we know is dealing with the aftermath of a global pandemic, factors such as increasing geopolitical tensions and a rising inflation have impacted the spending patterns of investors and made them more conscious about securing their financial future. It is also interesting to analyse the results of our first ever Lifestyle Survey which provides an overview of spending habits which also helps in predicting lifestyle trends and gives us an indication of the personal inflation rates of HNWIs.”

Rising prices

The enduring effects of the pandemic, which is still an ongoing crisis in some countries, combined with a challenging set of macro-economic conditions and supply chain disruptions, has caused price rises for 75% of the goods and 63% of the services in the Julius Baer Lifestyle Index.

The weighted average of prices increased by 7.46 percent in the last year, compared to an increase of only 1.05 percent in the previous edition of the report. Supply chains, already strained by the pandemic, were put under further pressure by the war in Ukraine, leading to a rise in commodity prices and shortages in key consumer industries.

Inflation is rising globally and affecting consumers’ purchasing power everywhere. In line with the trends observed last year, there was an increased focus on where HNWIs are located – stability, security, and cost of living have all become decisive factors. Additionally, HNWIs have a stronger desire to do more with their own wealth and go beyond purchases to have a positive impact on society. Sustainability, ESG and philanthropy considerations continue to grow in importance.

Asia most expensive to buy car

The Lifestyle Index changes to reflect the evolving world of high-end consumption. This year no new items were added to the basket of goods and services; however, the models were updated for both cars and the technology package.

Asia is the most expensive region to buy a car, which is the single most expensive item in the basket. Shanghai is still the most expensive city in the index with four items ranked at the very top and the highest weighted-average price increase (30%). Taipei (3rd) moved up the ranking, mostly due to the prices of shoes, bicycles, and wine. Although Asia remains the most expensive region overall, Tokyo (8th) is also the city which slid the furthest (previously 2nd), driven by 13 items ranking lower than in the previous year and an average depreciation of -8.8% on the Japanese yen.

The Covid-19 pandemic, rising inflation and increased geopolitical tension have resulted in a sharp rise in prices overall but particularly in Europe, where the tourism sector has been strongly affected. While flights in Europe were generally more expensive than in other regions, hotel suites are almost twice as expensive as in Asia.

Johannesburg has lost its relative rank as the most affordable place to live well in the 2022 Index, despite five items showing lower prices than last year. The only African city represented in the ranking lost this title to Mumbai, where residential property is almost 60% cheaper than the global average.

Dubai: High rises

When it comes to hotel rooms, EMEA is the outlier, with overall price increases of almost 50%. This is also due to truly astonishing price increases in Dubai with +195% year-on-year, 2nd strongest increase after London driven by surge in visitor numbers. Smart strategies, tempting staycation offers, and with several major events staged in the UAE, the hospitality sector appeared upbeat.

Despite differing pandemic restrictions Dubai continued to receive tourists during 2021 – driven by a combination of pent-up-demand as travel reopened, the effect of Expo 2020 Dubai, and increased staffing cost have driven price rises in accommodation.

The city also witnessed 44% growth in residential property prices with short-term rentals and holiday homes on an upswing. Overall, Dubai’s residential market saw an increase in line with the trend in 2021 and properties were also relatively affordable, despite a significant rise in 2021. Continued growth in transaction volumes, strong demand for off-plan properties and new project launches supported support the residential market.

Julius Baer’s Global Wealth and Lifestyle report which assesses HNWI spending intentions for the coming year has highlighted that Middle East respondents intend to spend almost equally on health and fine dining as well as leisure accommodation. Within the EMEA region, Dubai is the most expensive city to buy a car (20% higher than regional average) but also a men’s suit and a watch.

Omar Barghout, Head of Investment Advisory, Julius Baer (Middle East), said: “One of the biggest trends we are seeing with regards to investors in the UAE is an increased spotlight on succession planning. This has been exacerbated not only by the pandemic but also of clients being more conscious of the impending wealth transfer process.

“We also see the rise of a more conscious investor with the next generation of clients focussing more on understanding what they have in their portfolio or what they invest in.”

Data for the index was gathered between November 2021 and March 2022.