According to the new annual Julius Baer Wealth Report, branding and prestige purchases are making way for buying value and quality among high net worth individuals in Asia due to changing luxury consumption patterns.
The luxury landscape in Asia, particularly in China, is moving away from some established market leaders. Purchases of items such as wine, cigars and watches are becoming more frequent and not seen as ‘one-off’ luxuries, according to findings of the new Julius Baer Wealth Report, now in its third year.
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Stefan Hofer, emerging market economist and lead author of the report, said, "Evidence continues to mount that Asia’s growth and wealth creation engine has decoupled from mature economies, and there are clear indications that China in particular is moving up the value chain."
Hofer added that Julius Baer anticipates the number of HNWIs in Asia to grow from the estimated level of 2.17 million in 2013 to at least 2.82 million HNWIs in Asia (excluding Japan) by 2015, which has not changed since the 2011 Julius Baer Wealth Report. The study in 2011 also predicted that Asia’s private wealth market is to reach US$15.81trn by 2015.
The Wealth Report in 2013 estimated the number of Asian HNWIs in 10 core countries will more than double by 2015 from its present level of 1.16m.
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According to the Julius Baer Lifestyle Index – compiled as part of the annual Wealth Report – the cost of living in luxury for Asia’s HNWIs continues to outpace standard measures of inflation.
The overall Julius Baer Lifestyle Index rose 8% in 2013.
Mumbai had the highest increase in cost of luxury goods and services over the past year, in both US dollar (11%) and local currency (16.7%) terms. Excluding property and equally weighting the other items, Shanghai luxury living costs rose by 10% in renminbi terms (11% in US$ terms).
A high average increase was noted for high-end wine, which increased more than 16% on average across all markets in Asia.
New additions
The Julius Baer Wealth Report has historically covered Hong Kong, Singapore, Shanghai and Mumbai. This year new cities were added including a comparison of luxury goods and services costs across Manila, Jakarta, Seoul, Taipei, Kuala Lumpur, Bangkok and Tokyo for the first time.
Hong Kong, Shanghai, Singapore and Bangkok have the most items that cost more than the region’s average prices. In Mumbai, Jakarta, Kuala Lumpur, Manila and Taipei, most luxury services are below the regional average, but they tend to have goods prices that are more expensive.
Japan at crossroads
Hofer said Japan’s economy is, however, at a "crossroads".
"In recognition of the profound changes that have taken place since September 2012, Tokyo has been included in this year’s report for the first time. We estimate that Japan is currently home to 2.1 million HNWIs, measured in US dollar terms.
"In contrast to other economies in Asia, where the report’s forecasts have included currency appreciation assumptions, Japan’s economic renaissance is, over the shorter term, created by yen weakness. Nevertheless, we are increasingly confident that Japan can cast off the yoke of deflation and drive further wealth creation into the medium term."
Hoffer added that Tokyo does not stand out for being especially expensive on the goods front apart from ‘men’s tailoring’ and ‘women’s shoes’ that are "more expensive than the regional average".
