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Luxury prices slip for London-based wealthy, says Stonehage

The price of a basket of luxury goods and services for London’s ultra-wealthy fell by 1.1 per cent in the 12 months ending April 2014, marking a significant fall in price inflation, following an increase of 4.9 per cent in the previous year.

This is based on research conducted by the Stonehage Group, a multi family office to international ultra-high-net-worth families.
 
The decrease, measured by Stonehage’s Affluent Luxury Living Index (SALLI), which the company uses to analyse the true costs of living for its clients, compares to an average inflation rate of 1.8 per cent, measured by the UK Consumer Price Index (CPI) over the same period.
 
SALLI 2014 reinforces findings that UHNW inflation is more volatile than CPI, tending to exceed standard inflation in times of confidence and falling short in times of downturn.
 
This decrease was fuelled predominantly by a 9.7 per cent fall in the price of luxury consumables, which includes beluga caviar, cigars, wine and fine dining. This consisted of a 10.7 per cent fall in fine wine over the period, according to the Liv-Ex 100 index, which was dragged down by select Bordeaux vintages from 2008-2011. Prices of luxury food such as caviar, which fell by about 37 per cent due to increasingly intensive farming methods, were also significant.
 
The culture and entertainment category was down 4.7 per cent, which included a 5.2 per cent fall in the value of high-end art1. The decrease was offset by increases in the cost of theatre tickets, which rose by an average 3.4 per cent, confirming the continued attraction of London as both a tourism and cultural centre. Media and creative arts members’ clubs increased their prices by approximately 17 per cent. 
 
The investments of passion category fell by 0.2 per cent, as high-end British-manufactured cars saw a very slight decline. The category would have seen a more substantial decrease if it were not for British fashion labels, which continue to gain demand from affluent buyers in China and the Middle-East, and were up by over 20 per cent for the period.
 
The category for sports and recreation was one of two that showed a price increase over the period, rising by 0.4 per cent. Executive seats at major tennis events increased by 44 per cent, likely fuelled by Andy Murray’s 2013 Wimbledon win, while membership fees at London’s top tennis clubs rose by 2.7 per cent. The price of chartering a luxury yacht held flat in Euros over the year but decreased by 2.1 per cent in Sterling due to the relative strength of the currency in the period.
 
The housing and family category also increased by 0.4 per cent. Costs of rental property (in Kensington and Chelsea) fell by 0.6 per cent, as the continued influx of overseas buyers, who are the main absentee landlords, led to an increased supply of rental properties over the last year, as well as many embracing the buy-to-let philosophy, thereby limiting the scope for rental growth. Private education in the capital rose by 3.6 per cent, supported by the arrival of international wealthy families seeking the best education for their children in London but also reflecting increased energy and utility bills. Dental check-ups and housekeeping fees also rose.
 
Travel costs fell by 2.5 per cent, as the strength of the pound again benefited those taking weekend breaks to New York and enjoying ski chalet rentals in Switzerland.
 
Ronnie Armist, chairman of Stonehage Investment Partners, says: “The decrease in SALLI shows that annual expenses for the ultra-wealthy in London have fallen, following a period of significant appreciation in recent years. Rental prices have remained flat even though property prices have themselves increased. A fall in the index, partially caused by an appreciating pound, has increased the purchasing power of the London based wealthy.
 
“Despite this, a price premium still applies to certain aspects of British life, as reflected in the increased price of sport and club memberships and private schooling, as well as for day to day amenities such as dental care and housekeeping in wealthy London districts. While the cost of living for the super-rich in London has fallen in the last year, this has been driven by sterling currency strength and conditions in certain very specific components of the index, and we expect prices to rebound as global economic conditions improve over the coming year.”

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