By Sarmishta Haribhai
Exclusivity, legacy, heritage, and wealth – these are just some of the hallmarks that make up the world of luxury investments. From designer luxury handbags, premium whisky, watches, art, and even sneakers, some may argue the luxury investment market has become an art in and of itself.
What is clear however, is that it is a market on the rise in South Africa – and is one that can pay off in the long run.
Nevertheless this is not a new concept, as it was accurately predicted as a burgeoning niche investment “class” in a report by multinational company, Deloitte, back in 2015.
What could not have been predicted however, would be the market’s resilience irrespective of a global pandemic, the global economic headwinds, geopolitical strife, rising inflation and rising costs of living.
The distinctly niche market, made up mostly of high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals, was able to ride the wave of economic unpredictability and is gliding into more wealth and expanded streams of income through luxury investments.
The country’s biggest pre-owned luxury reseller, Luxity, recently noted that while South Africa was a relatively small market in the context of the global industry, it reportedly recorded a 75% increase in luxury sales over the past financial year.
Aspiration and Passion
Gone are the days when one reached a certain level of wealth, and automatically invested in traditional assets such as stocks and bonds. Today’s generation of high-net-worth individuals also includes diverse new contributors to wealth – either through their rising social media stardom or booming entrepreneurial endeavours.
The “allure of the aspirational” however, is as alive as ever.
Locally, according to reported data from the National Treasury, personal tax income grew to R72 billion in 2021, with a verified 60 000 new South African millionaires created.
The rich got even richer. Continental African billionaires – five of whom are from SA – increased their wealth by a net of $1.6bn in 2020 alone, with a combined net worth of $22.2bn. SA’s dollar billionaires mean that the country is home to more than 25% of the continent’s wealthiest people.
The new generation of wealthy individuals places value in their passion collections – not following the same 50-year-old norms in the investment market; the crucial caveat today is the concept of the “pursuit of passion”.
That is where these markets and brands – be they fine wines or whisky, fine or contemporary art, Swiss watches, or high-end handbags – combine the idea of taking the world of luxury that appreciates in value into your home and combines the added benefit of an increased asset portfolio.
Amid these luxurious pursuits however, one cannot downplay the importance of having traditional (bonds and stocks) investments, and alternative investments (such as cryptocurrencies). However, the new generation of investors is investing in items that bring them joy. One high-end and sought-after handbag brand reportedly outperformed gold, amassing an annual return of 263% over the past five years. Another vintage highly collectable bag brand has been described as the new “modern must-have” for experienced and new collectors, fetching average auction prices nearing $29 000 (R557 000).
While art has, for many years, been a store of wealth for higher society, the types of art the collectors consume are far more contemporary. Yes, there is no substitute for a precious Van Gogh or Monet, but even controversial pieces from UK street artist Banksy are selling for millions of pounds and some have experienced growth rates of around 25% over the past five years.
At the right time and price, that joy inherent in this market is proving to multiply, while making financial sense.
Financial ease and financial sense
It is critical to note that there exists a key differentiator in terms of accessing this “new” world of luxury investment. It quintessentially lies in your ability to be financially liquid enough to not have a major purchase, such as a designer bag, influence any part of your financial portfolio. When that R50 000 designer bag, or an expertly crafted R1.5 million watch is not going to make a dent in your day-to-day life, then you know you can afford to invest in that market.
Once you become involved in the market, it opens you up to a community of like-minded investors and purveyors of finer assets.
Because of the nature of the quality and exclusivity of the commodities, their maintenance, condition, legitimacy and handling are of importance in order to validate and maintain their value. When one buys these sorts of items, there is always a how-to guide on how to store them and maintain their value, and you are put in touch with a database of legitimate collectors.
In SA, this is a relatively small segment of the population partaking in the luxury investments space. However, it is a trend that seems to show little sign of abating.
Luxury investing is not about saving to make a quick profit, nor investing to liquidate quickly and sell shares. It takes time to build relationships and, ultimately, have an experiential relationship with the item itself. This market of investors can also withstand economic downturns, are happy to partake in an ultra-niche space and they are willing to take the risk because they can afford it.
While it may seem somewhat different and complex, off-shore investments in luxury goods, for instance, are becoming increasingly accessible. What is key is the ability to access the investments in hard currencies where the markets are well established and offer diversity not provided in the stock market. Starting with traditional offshore investments in global currencies can be a great stepping stone to expanding your earning potential, and perhaps funding the passion purchases. Global offerings, such as the Liberty Offshore Investment Plan, can be the stepping stone to start harnessing the returns required to push your investments into the luxurious realm of “investing for your passion”.
Bringing humanity back into investing
The allure of luxury investment transcends deeper than just the rand and cents – you get involved with it because it resonates with something deeper within yourself. It is your hard-earned money, and gives you an opportunity to have a say on where and how you want to spend it.
It is about bringing humanity back into investing for this high-net-worth segment. It is about taking stock of the right financial decisions you’ve probably made over the years, with a trusted financial adviser, and making an educated investment about bringing joy and passion back to the game.
* Haribhai is Liberty Lead: Investment Proposition