Property has spiked higher as a share of NZ household wealth this century, swamping financial assets despite the rise of KiwiSaver, a new global report reveals.
The 2023 UBS Global Wealth Report shows the proportion of NZ personal wealth held in financial assets slumped from 65.5 per cent in 2000 to 51.4 per cent at the end of last year.
And even the arrival of KiwiSaver, now at $100 billion, failed to arrest the relative decline of financial assets, based on the UBS data.
In 2007, when the KiwiSaver regime went live, financial assets represented 57 per cent of total personal wealth in NZ with the proportion falling 5.6 per cent over the following 15 years.
However, the increased overweight to non-financial assets (primarily residential property) had an upside for wealth inequality in NZ as “the share of the top 1% had fallen dramatically from 24.8% in 2007 to 20.1% [by the end of 2022]”, the report says.
Richer people on average hold a higher proportion of their wealth in financial assets and benefit more as values rise.
The outsize influence of property on Kiwi wealth held last year even as NZ house prices fell 9 per cent – one of the worst recorded in the UBS data followed by the Hong Kong (-13.6 per cent) real estate market.
In contrast, financial assets as a proportion of total wealth in Australia has remained steady at just over 60 per cent over the entire 21st century to date – likely as rapidly growing superannuation funds kept pace with house values. By the same token, wealth inequality has increased across the Tasman since 2007 with the 1 percenters owning 21.8 per cent of total assets in 2022 compared to 19.7 per cent 15 years ago.
Meanwhile, the average wealth per adult in both NZ and Australia dropped by US$40,000 last year in nominal US dollar terms, the report says.
“In real terms, mean wealth fell by another 5.8%, so that the real losses in Denmark, the United States and Switzerland exceeded USD 50,000, the real losses in Canada and the Netherlands were above USD 60,000 and the real losses in Australia, New Zealand and Sweden were more than USD 80,000.”
Non-financial assets, in fact, defrayed the impact of inflation last year that saw “the only real wealth decline this century, apart from 2008”, the UBS study notes.
“… and the losses in the two years have many similarities. Inflation reduces debt growth to roughly zero in both years and increases the (negative) contribution of the reduced value of financial assets to –4.6% in 2022 compared to –5.7% in 2008.
“The core difference between 2022 and 2008 is therefore growth of non-financial assets, which accounted for about one-quarter of the real wealth loss in 2008, but still made a positive contribution in 2022, at least as far as the available evidence indicates.”
Overall, global wealth as measured in the UBS study fell US$11.3 trillion last year to end on US$454.4 trillion with the average wealth per adult declining some 3.6 per cent to settle at about US$84,700.
The report also notes fluctuations in wealth inequality measures following the COVID-19 crisis in 2020 when a market boom tipped the odds in favour of the already-rich.
“Since the end of 2021, many advanced nations have experienced significant reductions in financial wealth and this led to widespread falls in wealth inequality in 2022,” the paper says. “For the world as a whole, these annual shifts have roughly cancelled out, leaving global wealth inequality back at the level prevailing when the pandemic began, which, for most inequality indicators, was the lowest level recorded this century.”
Paul Donovan, UBS Global Wealth Management chief economist, says in the report that the world is “experiencing a period of astonishing economic alteration”.
“Properly mobilizing private wealth is critical in this period of change,” Donovan says. “Whether as a source of investment or philanthropy, private wealth will shape the opportunities that are presented by technological change. It is private wealth that will lead the funding needed to create diverse, sustainable societies.”
UBS also experienced astonishing change this year after absorbing rival Swiss bank, Credit Suisse, in a regulator-arranged shotgun marriage. As part of the forced merger, UBS inherited the global wealth report that was produced under Credit Suisse colours (given a co-credit in2023) for the previous 13 editions.