x Abu Dhabi, UAEMonday 22 January 2018

Wealthy see fortunes sink

There are fewer millionaires but the UAE's rich survive in greater numbers than the global average.

This year's Abu Dhabi Yacht Show attracted the region's millionaires who ordered bigger yachts on offer during the event.
This year's Abu Dhabi Yacht Show attracted the region's millionaires who ordered bigger yachts on offer during the event.

The number of millionaires in the country fell by about 10,000 last year as falling property prices and declining stock markets hit the bank balances of the nation's wealthy. The ranks of high net worth individuals, with investable assets of more than US$1 million (Dh3.6m), thinned by 13 per cent to 67,100 last year, according to a report from Merrill Lynch. But the rich of the Emirates and wider Middle East still fared better than the global average, which declined by about 14.9 per cent. Soaring property prices and bull stock markets have helped create thousands of new millionaires across the Emirates, while attracting designer brands, luxury sports car dealerships and some of the world's most famous five-star hotels.

But the arrival of the global financial crisis last autumn sent share prices tumbling while property prices also slumped, eating into the wealth of many investors. "UAE nationals tend to be very heavily invested in Asia and Europe, where economic conditions were even more challenging," said Amir Sadr, the head of Merrill Lynch's global wealth management business in the Middle East. Even Saudi Arabia, the region's biggest economy, experienced a 10.9 per cent drop in the number of wealthy individuals, to 91,600 last year from 102,800 in 2007. "Given the difficulties in the Middle East region, it has actually outperformed many western regions, particularly in Saudi Arabia," said Mr Sadr. "Although clients lost money in equity markets, the underlying economy remains strong and businesses are doing well in general."

The investment portfolios of the world's wealthy were severely hurt last year, with global equity markets losing nearly half their value and in some emerging markets up to 70 per cent of their value, resulting in a $30 trillion loss in global market capitalisation. Wealthy Gulf investors experienced a 16.2 per cent drop in financial wealth to $1.4tn last year from $1.7tn in 2007. The number of millionaires in the Gulf may shrink further this year as the global recession continues to cause financial distress for some of the most affluent family firms in the region, such as the Al Gosaibi and Saad groups, both of which are battling to restructure multibillion-dollar debt burdens. "These families had huge allocations outside the kingdom and were heavily leveraged in the UK and Europe," Mr Sadr said. "It could have happened to anyone with the same kind of exposure. Will there be more such situations? Possibly, but only a few."

Globally, the number of wealthy clients fell to 8.6 million people last year from 10.1 million in 2007, dropping below 2005 levels and led by sharp declines in North America, Europe and Asia Pacific. "Effectively, this means that nearly three years of robust growth were wiped out last year," said Mr Sadr. "Given such adverse market conditions, however, we were surprised that the numbers weren't even worse. The Middle East dropped at a slower rate than many other areas of the world." Merrill Lynch forecasts that by 2013, the financial wealth of millionaires will have recovered in all regions to account for $48.5tn globally.Financial wealth in the Middle East is expected to grow 5.7 per cent to $1.9tn in 2013 from $1.4tn last year.

"We won't go back to 2007 levels in a short period of time," Mr Sadr said. "It will take a lot of work but conditions are already starting to improve and stabilise. In the Gulf region, millionaires are looking for more opportunities now than they did last year." Despite severe declines in the price of UAE property since the start of the year, Gulf investors remain focused on the sector. "People are really looking into real estate now; it's not just general interest," Mr Sadr said. "Funds are already flowing and transactions are under way in places like Switzerland and the UK." The report revealed that clients in the Middle East and Asia-Pacific, excluding Japan, had the highest allocation for property investment of all regions last year. shamdan@thenational.ae