India's Ultra-Rich Turn to Commercial Real Estate: Equities, Art, and More

In India, the wealthiest citizens are making bold and calculated moves in the investment world. According to Kotak Private Banking’s latest Top of the Pyramid (TOP) Report, nearly half of India’s Ultra-High-Net-Worth Individuals (Ultra-HNIs) are leaning towards commercial real estate as their preferred asset class. This shift highlights the growing attraction of commercial spaces, which offer not only better leasing terms but also higher yields than residential properties, which still remain popular with 33% of Ultra-HNIs.

A New Era of Investment Preferences

As India’s economic landscape continues to evolve, the investment strategies of its wealthiest citizens are becoming more dynamic. The 20th edition of the TOP Report delves into the shifting patterns, spending behavior, and investment choices of Ultra-HNIs. Conducted with Ernst & Young LLP (EY), this report surveyed 150 Ultra-HNIs across the country, unveiling the complexities of their portfolio diversification.

“India’s Ultra-HNIs are increasingly looking at both domestic and international assets,” said Oisharya Das, CEO of Kotak Private Banking. “Their choices reflect a broader global mindset, setting the stage for a significant rise in spending over the next few years.”

Real Estate: The Second Most Popular Asset Class

Real estate, particularly commercial properties, takes up 29% of Ultra-HNIs’ portfolios, making it the second most preferred asset class after equities. What draws Ultra-HNIs to commercial properties is the long-term contracts and favorable lease terms, which provide a steady stream of higher rental yields.

Globally, the appeal of foreign residential and commercial real estate is undeniable, with 47% of Ultra-HNIs holding foreign residential properties, often tied to migration plans. Meanwhile, 35% have ventured into foreign commercial real estate, further diversifying their holdings.

Revolutionizing the Investment Landscape with PropTech

Among the newer investment avenues, Real Estate Investment Trusts (REITs) and InvITs are gaining traction. These vehicles, offering dividend income and indirect investment opportunities without direct ownership, are preferred by 21% and 38% of Ultra-HNIs, respectively. The recent SEBI amendment allowing for small and medium REITs is expected to democratize the market, enabling greater retail participation.

Equities and Collectibles: The New Luxury

Ultra-HNIs’ interest in equities remains strong, with 89% of them investing in individual stocks, and a whopping 32% of their portfolios allocated to equities. Notably, the pandemic has shifted focus to health and wellness, with 10% of their budgets dedicated to wellness travel, home fitness, and preventive care.

In addition to stocks, tangible assets such as fine art and luxury items hold significant value for Ultra-HNIs. An impressive 94% of Ultra-HNIs own jewelry, while 73% invest in art. This affinity for high-value collectibles like rare coins, vintage cars, and luxury bags demonstrates a broader shift towards items that combine prestige, luxury, and legacy.

International Investments and Succession Planning

A growing trend among India’s Ultra-HNIs is global investments. Over a third of them hold international investments in mutual funds, stocks, and real estate, with a particular focus on the U.S. and U.K. markets. As they increasingly move assets abroad, many Ultra-HNIs are also focusing on succession planning. About 37% prioritize securing their estates through collaboration with private bankers and accountants.

As India continues to embrace globalization, Ultra-HNIs are increasingly finding themselves at the crossroads of legacy, prestige, and growth. This shift reflects the changing nature of wealth management and preservation in a rapidly evolving world.

The Changing Face of Wealth in India

According to Saurabh Joshi, Partner at EY India, “The Ultra-HNI segment is transforming, marked by rapid growth and evolving needs. It’s critical for financial advisors to stay ahead of this curve to meet the demands of today’s wealthiest individuals.”