Millionaires on the move

On Sunday, a European billionaire decried a proposal to raise taxes on the wealthy as "an offensive that is deadly for our economy." He said that his government's latest attempt to balance the books was ideologically motivated, rather than grounded in economics, and would drive the wealthy away. Can you guess who it was, or where our billionaire comes from?

I'll tell you: it was Bernard Arnault, chief executive of LVMH Moët Hennessy and France's richest man. He was rejecting a proposal for a minimum 2% annual tax on the assets of individuals worth at least €100 million. But it could just as easily have been a billionaire from many of Europe's key wealth centres – including the UK, Italy, Germany or Spain – all of which have either introduced or proposed measures that will or could increase the cost of living for the wealthy. 

Resolving this issue will be among the political and economic stories of this era. Massive stimulus introduced to support economies during the pandemic have left governments with deficits that in several cases stretch north of 100% of GDP. Meanwhile, the cost of maintaining social services and infrastructure is rising as populations age and amid elevated long-term government borrowing costs. 

There's always been a balancing act between taxing labour and taxing wealth, and relying more on either is particularly tricky at the moment. The rising cost of living and stagnant wages have left taxpayers much more resistant to additional levies, and they will be ruthless at the ballot box. Meanwhile, the wealthy are increasingly mobile, and there is little prospect of coordinated global action on taxing them. The OECD has made attempts, but the latest initiative was effectively scuttled by the US administration in January. 

Lifestyle appeal

The implications for property vary. For one, taxing real estate assets is often viewed by politicians as more palatable than wealth taxes. As the FT points out, one of French President Macron's first moves was to water down a net wealth tax on people's personal assets above a certain threshold by replacing it with a narrower tax on real estate assets.

Cross border movement of wealthy individuals is also transforming local property markets. While the wealthy often purchase homes, it's the broader lifestyle appeal that frequently seals the deal. Residential investment is typically just the starting point, often paving the way for further capital to flow into other sectors like hospitality. Milan's evolution offers a clear case study of how this ripple effect plays out. 

The new Knight Frank European Lifestyle Report tracks how these trends are influencing buying decisions across the continent. The report draws on a survey of 700 high-net-worth individuals (HNWIs) across Europe and further afield, shedding fresh light on the scale and nature of their relocation patterns. Almost half are considering either relocating to, or moving within Europe. Business opportunities and financial stability, alongside tax incentives are the leading motivations for moving. Political, social and personal stability sits in third place, followed by retirement lifestyle and healthcare quality.

Unsurprisingly, tax has risen in the list of priorities. Last year, it ranked third, behind security/privacy and employment. When it comes to taxes, income tax and property tax rank as the most critical relocation considerations, followed by capital gains and wealth taxes. Income tax matters most across all groups, while wealth taxes weigh more heavily on respondents from the UK, the US and France.

See the report for more on who is buying where and why. Kate Everett-Allen provides a short introduction here. 

Redeploying capital

It's been a big week for calling the bottom of London's property markets. First, Dubai-based Arada announced a £270 million investment in residential developer Regal, with an intention to treble its pipeline to 30,000 homes in the next three years. 

“Market sentiment is down, there’s been an outflow of investors, there’s a lack of development happening,” Ahmed Alkhoshaibi, chief executive and co-founder of Arada told the Times. “This is the time to come in, at the bottom [of the market], like we’ve always done.”

Middle Eastern developers have enjoyed massive success amid booms in their home countries and are looking to redeploy capital elsewhere. The Arada deal follows Abu Dhabi-based Aldar's acquisition of London Square in December 2023. 

London's residential development market is being hampered by a web of complex regulation, weak demand and heavy taxation of overseas investors - see this note for more. Deep pockets and patient capital alleviates some of those pressures, perhaps most importantly the reliance on off plan sales to fund delivery. There are also clear synergies when it comes to cross selling to the developers' respective customer bases. 

A standout opportunity

Investors are zeroing in on London's offices, too. Australian pension fund Aware Super has ploughed US$1.3 billion into UK and European real estate since opening a London office about two years ago, Bloomberg reports. London offices are now top of the shopping list due to the shortage of high quality office space.

“We have identified Europe as a very critical region for us,” Alek Misev, Aware Super's head of real estate tells the newswire, adding that the city’s offices were “a standout opportunity”.

New Jersey-based Conversant Capital is also calling the bottom of London's office market – this is from Bloomberg again. The real estate investor signed a partnership with private equity firm Castleforge that will invest in more than £1 billion, according to the report. 

“We’ve been vocal the past few years about running toward the strong occupier market when many were running the other direction,” says Castleforge founding partner Michael Kovacs.

In other news

New Zealand woos the wealthy with golden visa changes (FT), Pimco bets on fall in UK inflation to open door to deeper rate cuts (FT), policymakers urge Rachel Reeves to tax ‘better-off older people’ (Times), Citigroup Canary Wharf Office to Be Overhauled After HQ Move (Bloomberg), Red Sea Homes Priced Up to $40 Million in Saudi Property Boom (Bloomberg), Hong Kong Allows Cheaper Home Purchases for Investment Visas (Bloomberg), UK to ease path to 'bring talent' after Trump visa move, Reeves says (Reuters), and finally, UK firms lose momentum as they worry about new tax hikes, PMI shows (Reuters).