The global luxury goods market is somewhere around US$300 billion if you exclude fancy cars. And in just 4 years, global luxury spending has flipped from over 60% of it being in Europe and the Americas, to now over 60% of it being in Asia -- with over 40% of it being in mainland China alone. See above chart from the Financial Times.
But I think what really happened is that when global travel shutdown in 2020, Chinese buyers just started spending all of their luxury goods money at home instead of flying to Paris for the week. Because if you look at Chinese luxury goods spending in 2018, somewhere around 1/4 of it was done in mainland China, whereas today it's close to 100%.
So the Chinese have been moving this market for quite sometime. But now that the consumption has moved entirely home, what does that mean for cities around the world? Hong Kong used to be one of the most important places for luxury consumption in Asia (no sales tax), but that has changed and it probably won't return. This is for reasons that go far beyond luxury goods.
But I think we'll see spending in Europe bounce back along with Asian travel. Because buying a luxury good is about much more than just the good itself. It's about the experience. It's about how it makes you feel when you buy it. And it's about signalling to others who you are as an individual. This may sound vacuous, but we all do it, with or without expensive luxury goods.
There are also new opportunities emerging by way of NFTs. I am sure that some brands are already doing this, but if I were in charge, I would issue a unique NFT with each luxury goods purchase that records, among other things, where it was purchased. Is a bag purchased on the Champs-Élysées worth more if there is a record of it that is etched in stone permanently? Maybe.
UBS and PwC's recent report on billionaire wealth highlights some interesting trends about the global economy and global wealth.
Billionaire wealth in mainland China is now second to only the United States, having grown by about 1146% from 2009 to 2020, compared to 170% in the US. As of the middle of this year, it was sitting at about USD 1.7 trillion in China, compared to USD 3.6 trillion in the US.
Hong Kong remains a force with only 1,105 square kilometers of land (not all of which is developable). Billionaire wealth grew by about 208% to USD 356 billion over the same time period as above. That puts it ahead of the United Kingdom, Canada, and Brazil in total dollars.
About half of all billionaires seem to have a significant amount of their wealth invested in real estate. Somewhere between 21-40% of their net worth.
At the same time, the report identifies the real estate industry as having the fewest number of "innovators & disruptors." Only 17% of billionaires (whose wealth is primarily derived from real estate) are classified in this way. The report calls out the sector as being "especially slow to embrace technology to boost efficiency."
Perhaps the most interesting takeaway is that, even within the rarified billionaire community, tech is driving polarization. For most of the last decade, the sector didn't matter all that much. The rich were getting richer. Now it's more so the tech rich. And COVID-19 seems to be accelerating this trend.
This is not to say that I think people are particularly worried about billionaires who maybe aren't getting as rich as they used to. That's like complaining about being too good looking. But it is clear that tech is driving a bunch of macro shifts in the global economy and this is just another example of that playing out.
Image: UBS and PwC
I came across this Hong Kong apartment listing earlier in the week. Sai Ying Pun is the neighborhood.
HK$9.8 million = C$1,554,833 based on today’s exchange rate (1 CAD = 6.30293 HKD).
At 432 square feet (net), that’s C$3,599 psf. But I have also been told that new buildings here could easily fetch C$5,000 psf and probably much more.
There’s certainly a tremendous amount of wealth in Hong Kong. However, the topic of discussion right now is the new money being generated in mainland China.
I am curious what all of this could mean for Hong Kong, it’s place within the PRC, and for real estate long-term.
Hong Kong’s Basic Law stipulates that the region shall maintain a capitalist system and that its current way of life shall be preserved outside of the PRC.
But that constitutional document is set to expire in 2047 – fifty years after the handover from the British. And one would assume that China would favor more, rather than less, integration.
Already the Cantonese language – the official language of HK along with English – seems to be getting diluted in favor of the “speech of the officials.”
So what will Hong Kong look like by the middle of the 21st century? Will it simply become a “second city” to Beijing and Shanghai?
Place your bets in the comments below. Or call Miss Winnie.