Top of the Pyramid 2013
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The Top of the Pyramid 2013 report continues to build on the foundation that Kotak Wealth Management and CRISIL Research laid two years ago to track ultra HNI trends year on year with specific ...

The Top of the Pyramid 2013 report continues to build on the foundation that Kotak Wealth Management and CRISIL Research laid two years ago to track ultra HNI trends year on year with specific reference to the Indian market.

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Top of the Pyramid 2013 Top of the Pyramid 2013 Document Transcript

  • FOREWORD The global economic scenario improved, albeit marginally, in 2012 but a full-blown recovery appears to be farther away than what most people anticipated last year. It is also fair to say that whatever little recovery has taken place is lopsided; things are looking up in the United States, for instance, but many parts of Europe continue to languish in crisis. The India story too has become a bit murkier. Ultra high net worth individuals (ultra HNIs) believe today that the turmoil in the economy is more deep-rooted than what appeared to be the case last year. Some of that crisis of confidence in the economy’s ability to revive quickly is spilling over into all aspects of ultra HNI behaviour, including spending and investments. This year, a number of ultra HNIs alluded to the possibility of a wait and watch attitude on discretionary spends. Yet – and this is a very heartening aspect for both wealth managers and luxury goods makers – wealth creation continues. The number of billionaires in the country has gone up substantially and so has their wealth, resulting in a growing need to manage and preserve their wealth better to create a longer lasting legacy. Consequently, estate planning, a hitherto neglected area, is becoming increasingly relevant for Indian ultra HNIs. It is an issue that we have explored in some detail in this edition. True to their nature, ultra HNIs are also finding new ways to create wealth even in these uncertain times and finding even newer ways to splurge in search of exclusivity. The rapid growth in branded luxury home sales in recent years, for instance, is testimony to that. Not only are the ultra HNIs gobbling up luxury homes in India, they are also looking at foreign destinations such as London and Dubai. In this year’s report, we shed more light on the trends in luxury home purchases and the factors that drive exclusivity in this segment. Kotak Wealth Management and CRISIL Research are extremely proud to present this third edition of their path-breaking annual report 'Top of the Pyramid (T.O.P.)’. As always, happy reading. C. Jayaram Mukesh Agarwal Joint Managing Director President Kotak Mahindra Bank Ltd. CRISIL Research
  • INSIDE THE REPORT About the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01 Executive Briefing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06 1. Wealth creation amidst crisis of confidence in the economy 2. Ultra HNHs in India: Their numbers and their wealth 3. Future of wealth creation in the non-metros 4. The long-term India story: Are we at the cross-roads? Spending Patterns: Attitudes, Motivation and the Ultra Wealthy Lifestyle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1. The downturn effect on ultra HNI spending behaviour 2. Spending patterns in 2012 3. Products they prefer to spend on a. Luxury watches b. Jewellery and precious stones c. Household electronics d. Apparel and accessories 4. Gifts and Travel Special Focus: Luxury Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1. Dynamics behind a luxury home purchase 2. Why are more and more Indians buying luxury properties abroad? 3. Key influencers in purchase decision 4. How are real estate developers wooing the rich? Investment Trends: Risk, Return and Wealth Preservation . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 38 1. Sources of income 2. Income allocation Special Focus: Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Why is estate planning still not very popular among ultra HNIs? 2. Most popular forms of estate planning at present 3. Bright future of estate planning in India 46
  • ABOUT THE REPORT Global economic growth is more buoyant now compared to the banking space catering to 43 per cent of the 100 most wealthy (as per conditions that prevailed when we came out with our previous the Forbes India Rich List - 2012) in India. report. A mild recovery is underway in the US, there is a new push to reinvigorate the Japanese economy and Europe is far more stable now CRISIL Research is India’s largest independent research house, compared to last year when Greece, Italy, Spain, Portugal and France providing comprehensive research coverage to more than 1,200 came in the grip of the sovereign debt crisis, in varying degrees. Indian and global customers. Consequently, wealth creation, which was hit during the previous This report is based on two main strands of research: year, hit new highs this year. One indicator of this is the number of 1) A series of interviews that were conducted with senior personnel billionaires in the Forbes Billionaires List, which hit an all-time high at major global luxury brands, dealers of luxury brands and of 1,426 in 2013, up by 16 per cent over 2012, propelled by resurgent wealth managers. asset prices. The combined net worth of these individuals has also gone up by 17 per cent to $5.4 trillion. 2) A commissioned market survey conducted by Feedback Consulting, of 150 ultra HNIs, with conversations lasting up to one hour. The survey took place between March 2013 and May 2013. The net worth of ultra HNIs in India has also gone up, despite Nearly 49 per cent of the respondents were from the four metros, the dismal economic scenario. However, it is evident from our while the rest were from other major cities such as Pune, conversations with ultra HNIs this year that their confidence in the Bengaluru, Ahmedabad and Chandigarh. economy’s ability to recover quickly is far less optimistic compared to the previous year. And that is inducing a degree of caution in their CRISIL Research then undertook an extensive analysis of the results spending behaviour, an attitude that goes against their grain. of the survey and many of the conclusions were validated with our primary sources. In our previous reports, we have looked at behavioural aspects of ultra HNIs and answered questions such as the priorities or motives of ultra This report would not have been possible without the co-operation of HNIs when it comes to spending or investing, their actions as a class, all the survey respondents and the interviewees. We thank them for their mindset and behaviour during times of adversity. their invaluable support, the time they put at our disposal and the insights they offered. A deep knowledge of ultra HNI behaviour is a prerequisite for both wealth managers and luxury brand companies to grow their About Kotak Mahindra Group relationships and expand their businesses. This year, we provide Kotak’s evolution is a tale of consistent pursuit of opportunities, valuable insights into ultra HNI behaviour with respect to luxury despite a rapidly changing economic and business landscape. Today, homes and estate planning. We are confident that the learnings after more than 27 years since inception, it continues to gather from this year’s report will be as beneficial as they were last year. This momentum with an unwavering focus. report continues to build on the foundation that Kotak Wealth Management and CRISIL Research laid two years ago to track ultra HNI As we retrace our steps to the initial days of our journey, one particular trends year on year with specific reference to the Indian market. day stands out in the crowd – 21st November, 1985. This was when we identified an opportunity in the bill discounting market. That Kotak Wealth Management is a pioneer and leader in the private 01 | T.O.P. India - Kotak Wealth & CRISIL Research opportunity helped shape Kotak Mahindra Group.
  • In February 2003, Kotak Mahindra Finance Limited, our Group’s goes beyond investments to provide a host of value-added services flagship company, became India’s first Non-Banking Finance Company such as Estate Planning Services, tax optimisation, etc. to receive a banking license from the Reserve Bank of India (RBI). Kotak Wealth Management is the only Indian Wealth Management Thus was laid the foundation of Kotak Mahindra Bank Limited (KMBL). firm to feature in the 'Top 25 Private Banks' of the world in the category We are focussing our industry experience and capabilities to cater to of 'Best Private Banking Services Overall' by Euromoney Private changing customer aspirations. Banking Survey 2013. Our solutions are technology driven, contemporary and comprehen- We have maintained our leadership position, thanks to the macro sive, spanning consumer banking, commercial banking, corporate environment, in-depth understanding of the client’s requirements and banking, wealth management, retail and institutional equities, asset of the various asset classes. This has resulted in Kotak being in a management, life insurance and investment banking. position to offer the widest range of solutions for the client. Kotak Wealth Management is a part of Kotak Mahindra Bank Ltd. We have come a long way since we began. Kotak now caters to the diverse financial needs of individuals and the corporate sector, About CRISIL Limited nationally and internationally. CRISIL is a global analytical company providing ratings, research and About Kotak Wealth Management risk and policy advisory services. Kotak Wealth Management is one of the oldest and the most We are India’s leading ratings agency. We are also the foremost respected wealth managers in India, providing solutions to the high provider of high-end research to the world’s largest banks and leading net worth individuals. Kotak Group has over fourteen years of corporations. With sustainable competitive advantage arising from experience in wealth management, offering the widest range of our strong brand, unmatched credibility, market leadership across products and services. Our client base ranges from entrepreneurs to businesses, and large customer base, we deliver analysis, opinions and business families, as well as employed professionals. We provide solutions that make markets function better. financial advice and manage wealth for 43 per cent of India's top 100 families (as per the Forbes India Rich List - 2012). Our defining trait is our ability to convert data and information into expert judgements and forecasts across a wide range of domains, with On the investment scenario, we believe that no single asset class tends deep expertise and complete objectivity. to perform consistently over a long period of time. Therefore, an HNI needs to be given access to various asset classes, investment styles, At the core of our credibility, built up assiduously over the years, are themes and tenures. With this philosophy, Kotak has built a formidable our values: Integrity, Independence, Analytical Rigour, Commitment suite of products and services straddling this spectrum. Our offering is and Innovation. customised, based on the client’s profile and investment objectives. This can be done through a transaction-based investment approach CRISIL’s majority shareholder is Standard and Poor’s (S&P). Standard or the asset advisory approach. & Poor’s, a part of The McGraw-Hill Companies (NYSE:MHP), is the world’s foremost provider of credit ratings. The Kotak Wealth umbrella also includes Family Office. Family Office, T.O.P. India - Kotak Wealth & CRISIL Research | 02
  • We address a rich and globally diversified client base. Within India, our linkages. We deliver our research through an innovative web-based customers range from small enterprises to the largest corporations research platform. Our talent pool comprises economists, sector and financial institutions; outside India, our customers include the experts, company analysts, and information management specialists. world’s largest banks and leading corporations. We also work with governments and policymakers in India and other emerging markets in the infrastructure domain. We empower our customers and the markets at large, with independent analysis, benchmarks and tools. These help lenders and borrowers, issuers and investors, regulators, and market intermediaries make better-informed investment and business decisions. Our offerings allow markets and market participants to become more transparent and efficient – by mitigating and managing risk, taking pricing decisions, generating more revenue, reducing time to market and enhancing returns. By helping shape public policy on infrastructure in emerging markets, we help catalyse economic growth and development in these countries. About CRISIL Research CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macroeconomy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral 03 | T.O.P. India - Kotak Wealth & CRISIL Research
  • EXECUTIVE BRIEFING Domestic economic conditions remain dreary but India’s ultra high And the list of non-discretionary items is growing. net worth individuals (ultra HNIs) are getting richer and many more are joining the exclusive club. The confidence of ultra HNIs in the In recent years, the growth in luxury home sales has been a very good economy’s ability to rebound swiftly is still low but they are indicator of the wealth creation underway in the country. An analysis re-investing a lot more into their businesses vis-à-vis last year. They that we undertook to figure out what drives ultra HNI purchases of are increasing their spending horizons but simultaneously exercising luxury homes found that the choice of location is the predominant a degree of caution on ultra high value spends. They say they are less factor. The luxury home is a status symbol for the ultra HNI and he risk averse compared to the previous year, yet invest a lot more in goes to great lengths to ensure exclusivity. So, factors such as brand debt instruments. aspects relating to the architect / developer, architectural significance, amenities on offer etc. – anything that offers a chance at exclusivity Don’t be Confused. That is the Indian ultra HNI for you, circa 2013. becomes a swing factor in the purchase. Interestingly, luxury home Making the most of even relatively bad times, getting wealthier each purchases by ultra HNIs are not confined to India. Driven by greater day and living life to the hilt. According to Forbes magazine, the globalisation, comparable valuations overseas and investment number of Indian billionaires has gone up by 7, from 48 in 2012 to 55 considerations, more and more ultra HNIs are purchasing luxury in 2013. That, we believe, is just the tip of the iceberg. Over the next properties abroad in places such as Singapore, London and Dubai. five years, we expect ultra high net worth households (ultra HNHs) in To meet this burgeoning demand, developers are resorting to the country to more than triple to over 329,000 households. methods such as whisper marketing and exclusive invitations. So what, one may ask, is different this year? For one, the confidence of Discipline and capital protection continued to be the line on invest- ultra HNIs in the economy has taken a beating. This year, nearly 90 per ments. Allocation to asset classes such as debt continued to be cent of the respondents said that there is a downturn and a sixth of significant in 2012. Risk aversion was a shade less as evidenced by the them are not optimistic of an early recovery. Yet – and that is where increase in exposure to real estate. Traditionally, investment in real the contrast lies – there has been an increase in the money ploughed estate is seen as medium risk in India, but ultra HNIs are increasingly back by ultra HNIs into their primary business. On the other hand, capitalising on opportunities such as distress sales as part of their it is not perhaps so surprising because the primary business is where short-term investments. In that sense, trends this year were not too they generate most of their wealth. Either way, they are sending a dissimilar compared to last year. signal to policy makers. Ultra HNIs are also finding that, in a world of scarce capital, many Last year, most ultra HNIs viewed the slowdown as a temporary blip countries are actively seeking them out and welcoming them with and were gung ho on spends. This year, the pessimism on the open arms. Globally, this is one of the factors instrumental in driving economy is inducing a degree of caution in spend. And, that is curious the estate planning business and ensuring healthy demand for because it is an attitude that goes against the very grain of ultra HNI professional wealth managers and estate planners. On the other hand, behaviour. Some of them are biding time to see which way the the estate planning business in India is at a very nascent stage. economic wind is blowing before embarking on high value purchases Because many family-owned businesses are traditionally passed on such as top-end luxury cars, home mini-theatres etc. Perhaps, they are to the next generation, the essence of estate planning in India is just being street-smart because non-discretionary spending continues on secrecy and trust. Hence, it is the family’s chartered accountant unabated on apparel, luxury watches and high-end electronics. or lawyer who usually also doubles up as an estate planner and T.O.P. India - Kotak Wealth & CRISIL Research | 04
  • professional wealth managers are still not much sought after. Still, in the years ahead, the reliance on family CAs / lawyers will decrease because the newer generation of ultra HNIs is more aware of the nuances of estate planning and the niche products that are being offered by professional wealth managers. As the India story unfolds in the long term - and the number of ultra HNIs zooms and their coffers swell - estate planning is a business that will not only grow but thrive. 05 | T.O.P. India - Kotak Wealth & CRISIL Research
  • INTRODUCTION
  • INTRODUCTION The crisis engulfing the global economy has eased somewhat since are growing wealthier and appear to remain largely unaffected by the our previous report (Top of the Pyramid 2012) but it is by no means out economic cycles. of the woods yet despite the modest recovery of the US economy. Much of Europe still remains in the throes of a sovereign debt crisis The number of billionaires in the Forbes Billionaires List is at an all-time and the bailout of Cyprus this March is a grim reminder that normalcy high of 1,426 in 2013, up 16 per cent over 2012, propelled by resurgent in that part of the world is quite some way away. The BRICS nations are asset prices. The combined net worth of these individuals has also also not exactly in the pink of health, either. gone up by 17 per cent to $5.4 trillion. But if one were to assume, such a woeful economic climate would This year, gainers outnumbered losers by 4 to 1, which is in sharp have a dispiriting influence on the global wealthy, one would not be contrast to the previous year, when there were nearly as many gainers more wrong. As the Forbes Billionaires List suggests, the global elite as losers. NUMBER OF INDIANS ON FORBES LIST* NET WORTH ( ` BILLION) 2013 2004 1996 55 Indians= 11,000 ` Billion * Forbes Billionaires List - 2013 Source: T.O.P. India - Kotak Wealth & CRISIL Research 07 | T.O.P. India - Kotak Wealth & CRISIL Research 3 Indians= 212 ` Billion 9 Indians= 1,157 ` Billion
  • Indians too have done well. According to Forbes, the number of be a hasty and not entirely correct one. Is the subdued economy Indian billionaires has gone up by 7, from 48 in 2012 to 55 in 2013, hitting luxury spending? Or is it that this year's reaction to the notwithstanding the dreary domestic economic environment that downturn is a public relations exercise, a politically correct statement has prevailed over much of last year and so far this year. And more in tune with the times? people will join this crème-la-crème in future. Over the next five years, we expect ultra high net worth households (ultra HNHs) in the The truth probably lies somewhere in between. Last year, one ultra HNI country to more than triple to over 329,000 households. had remarked: “We are used to a certain lifestyle and it is not easy to change it, even if there is a slowdown – it is not impacting us so much The defining finding of this year's survey of ultra high net worth that we need to change or cut our lifestyle.” individuals (ultra HNIs) is that a surprisingly large percentage of respondents believe that a) there is a downturn, b) an early recovery is This year, because of the lingering uncertainty on the economy, many not in sight. Nearly 90 per cent of the respondents agreed that there are not so optimistic. Moreover, many of these ultra HNIs are owners is a slowdown and around 14 per cent felt that the economy would of businesses that employ thousands. It is, therefore, prudent for recover only by the end of 2014; the timeline for recovery indicated many of them to project a level of austerity in their public and personal by about 65 per cent varied from mid-2013 to mid-2014, with a bias life at a time when the wages of their employees are under pressure towards the latter. due to the weak economic environment, which has, in turn, affected business revenues and profitability. Vikram Pandit took over as the For economy and industry watchers, that prognosis should be a cause CEO of Citibank at a time when the bank's finances and survival were of concern, coming as it does from people who are either primarily under a cloud. As the media widely reported at the time, Pandit took businessmen or those who manage businesses. It indicates a level of only $1 in salary in his first year: it was not because the bank could not pessimism about the economy that we did not encounter last year. pay him a commensurate salary, but it was Pandit's way of indicating in those troubled times that austerity begins at the top. To be fair, we had alluded to such a possibility in our 2012 report. “Conversely, if the India story is either compromised or delayed, On the other hand, there are some who are postponing discretionary even the unthinkable could start appearing within the realm of spend on ultra high value purchases (such as top-end luxury cars, possibility – for instance, the cautious behaviour that is currently yachts, home mini-theatres etc.) preferring to wait and watch to see evident on investments could well spill over into spending.” which way the economic wind is blowing before committing to their purchases. More importantly, the pessimism of ultra HNIs about the economy has caused a change in their perception on spending: nearly a third of It is in this context that one should read the response of 33 per cent of our respondents indicated that their spending has been adversely our respondents who said that compared to the previous year their impacted. This is starkly different from last year, when most spending was down by 20-25 per cent. Here too, the bulk of the impact respondents dismissed our query on the downturn with an almost is on discretionary spend; spending on non-discretionary items such derisive “What? Downturn!” look. as apparel, high-end mobiles and electronics has hardly been impacted. Although it is tempting to jump to the conclusion that the super wealthy are cutting down on their spending, that would perhaps T.O.P. India - Kotak Wealth & CRISIL Research | 08
  • But increasing their wealth is only one part of the picture on the proportion of India's businesses are family owned and are passed on global wealth landscape this year. On certain other fronts, things from generation to generation. have certainly not been very hunky-dory. A defining image that eloquently captured one of the concerns of the global super-wealthy These concerns apart, the desire to live luxuriously is only increasing this year was the meeting in January between one of France's film and items that are part of discretionary spending only seem to be legends and the Russian president, wherein the former was granted growing due to the heavy, technology-driven lifestyle and the Russian citizenship. What made the event extremely unusual was numerous opportunities that abound to become rich in today's India. that this beloved son of France is not only one of the most decorated and awarded icons of French cinema, but is also a very successful This is not a phenomenon that began last year or the year before. India businessman and vineyard owner. It was the gripping finale to a has had extremely rich individuals in its ranks in the past too, but they tax debate that began last year after the newly elected French were few and far between. What really tipped the scales and propelled government proposed a 75 per cent tax on the super-rich. a spectacular jump in the number of ultra HNIs in the country was the domestic liberalisation process during the 1990s. A series of The tale of the French super-rich is not just about the French alone, it path-breaking economic and capital market reforms during this period is a story that is unfolding across the globe in varying degrees. In many not only freed the economy, but also stimulated entrepreneurship, parts of Europe and elsewhere, governments are seeking to increase enthused capital and wealth creation. taxes on the ultra wealthy as part of measures to bolster their sagging economies. On the other hand, countries such as Belgium, Russia and In the years that followed, growth unfolded at a frenetic pace in the Britain are among those that are actively wooing the global wealthy IT/ITES sectors, millions were drawn into the stock market frenzy that to relocate to their shores to rejuvenate investment in their territories. resulted from liberalisation of the capital markets, and average income levels rose multifold. As long pent-up aspirations were unleashed, Welcome to the new world! A world where some countries, businesses responded to the explosion in demand for a variety of desperately seeking scarce capital, are increasingly offering attractive products (both discretionary and non-discretionary), which eventually incentives to entice the progenitors of capital to settle in their land created millionaires and billionaires. and help it grow, while some others are seeking to increase taxes on the rich. The global wealthy are definitely in the telescopic sights of Today's environment is a sea change from what it was a few decades policy makers and what unfolds on this front will have a heavy bearing ago. Luxury homes at astronomical prices (comparable to luxury on future ultra HNI behaviour. It is also obvious that since capital homes in the world's richest residential districts) are today being protection is their prime motivation, ultra HNIs will relocate to areas constructed in cities such as Delhi, Mumbai and Bengaluru and are that will treat them favourably. still finding many takers, which would have been unthinkable a few years ago. Only a few weeks ago, a property in a prime location In India, as it became clear that previous estimates of an early in Mumbai went for as high as ` 118,000 per sq ft, reinforcing the economic recovery were off the mark, and the government sought perception that downturns don't matter where wealth is concerned fresh revenue-raising avenues, North Block kick-started a debate and where there is material desire. on the desirability of an inheritance tax, igniting concern among domestic ultra HNIs. Understandably so, because traditionally a large 09 | T.O.P. India - Kotak Wealth & CRISIL Research
  • In the long term, as India's economy grows further and it moves to We estimate that the total net worth of Indian ultra HNHs will reach regain its status as a global economic superpower after losing it during ` 380 trillion in 2017-18 from an estimated ` 86 trillion in 2012-13. This the Industrial Revolution, more and more people will move up the growth in net worth will be driven predominantly by growth in the income bracket due to the steady increase in average income. This will number of ultra HNHs and income growth. not only fuel changes in the attitude towards wealth and luxury living but will also exponentially increase the number of wealthy in the country. NUMBER OF ULTRA HNHs TO TRIPLE OVER THE NEXT 5 YEARS TO 329,000 The Indian Ultra HNH In our inaugural report, we had defined an ultra high net worth household (ultra HNH) as one having a minimum average net worth of ` 250 million essentially accumulated over the past 10 years, which as per CRISIL’s proprietary tool ’IDeA’ (Income and Demographics Analysis) gets mapped to a minimum income of ` 35 to 40 million. TOTAL NET WORTH OF INDIAN HNHs TO GROW 4.5 TIMES TO ` 380 TRILLION BY 2017-18 3-fold growth in ultra HNHs over the next 5 years 329,000 2012-13(E) * 100,900 2017-18(P) ` 380 Trillion 2017-18(P) At present, there are no validated estimates of the number of ultra HNHs in the country. If we consider a household with a minimum net worth of ` 250 million, there are more than 100,900 ultra HNHs in India # as of 2012-13. Although this number represents a meagre 0.03 per ` 86 Trillion cent of the total households in India, it is poised to more than triple to 2012-13(E) over 329,000 households by 2017-18. * Also read as ` 380,000 billion Also read as ` 86,000 billion # T.O.P. India - Kotak Wealth & CRISIL Research | 10
  • Over half of the ultra HNHs in the country continue to live in the four per cent. The rest are spread across the country. These numbers will metros, which is understandable because these cities are the financial eventually change in favour of the non-metros but only in the long epicentres of their respective regions. The other top 6 cities account term, as the benefits of development percolate down to all regions. for slightly over 13 per cent and the next 40 cities are home to about 15 NON-METRO HOUSES ALMOST HALF OF ULTRA HNHs 54.0% Metros 13.0% (Other top 6 cities) 15.0% (11-50 cities) 18.0% (Rest of India) 11 | T.O.P. India - Kotak Wealth & CRISIL Research
  • Unlike before Independence or in the early years after that, when they were most likely to have been from the upper class or the nobility, the Indian billionaires of today come from varied backgrounds. This is testimony to the fact that wealth creation through inclusive economic development is truly a great leveller. Entrepreneurship is clearly the dominant source of wealth in India, but fast-growing service industries such as technology and financial services too have catapulted many hitherto middle-income group households into the ultra HNH bracket. Based on our findings, using parameters such as source of wealth, motivation for wealth creation, spending behaviour, investing patterns, attitude towards charity/philanthropy and perpetuation of wealth, we had, in our inaugural report, classified the Indian ultra HNI into three groups: • Inheritors • Self-made • Professionals Sources of wealth Inheritance; entrepreneurship DECODING THE DNA OF THE ULTRA HNI Motives for wealth creation Wealth preservation Entrepreneurship Self-recognition Self-actualisation Attitude to perpetuation of wealth Attitude to charity 100,900 329,000 Compassion; gives money, less time 2012-13(E) Wealth needs to remain within the extended family 2017-18(P) Empowerment; rarely gives time Wealth is unconditionally for immediate family Responsible and conscious; gives money and time Wealth is for family, but they must strive to merit wealth Approach to investing Organised Drivers of spending Informal Maintaining luxurious living Professional Attaining luxurious living Value THE INHERITOR THE SELF-MADE THE PROFESSIONAL What sets these ultra HNIs apart from others is the sheer value and the type of assets they own. It is not often that one gets to build a 27-storey building for one self, with three helipads or have a 1-acre penthouse nearly a mile above, in the sky. Inevitably, in keeping with the need to maintain a flamboyant lifestyle, they are very heavy spenders on high quality homes, food, clothing, education, travel and family vacations. T.O.P. India - Kotak Wealth & CRISIL Research | 12
  • In 2012, despite the concerns that they expressed on spending, ultra or school for their children. HNIs continued to spend the most on apparel, luxury watches and high-end electronics all of which are non-discretionary spends. But This year, we analysed luxury homes and found that the choice of luxury car makers were struggling with sales and reported a bad year. location is the single-most important factor driving the ownership of However, the downturn has certainly not spoilt the vacation plans of a luxury home. The choice of location is paramount because a luxury the ultra HNIs. A significant percentage of non-metro ultra HNIs who home is a status symbol and represented exclusivity. Among the travelled overseas continued to combine their trips with shopping for Inheritors and the Self-made, the preference is for a customised villa, their favourite brands, particularly clothes and watches. whereas the Professionals are keen on a readymade villa / bungalow or a penthouse in a multi-storey tower in an upmarket locality. This was In investments, last year’s disciplined approach – with the over - arching followed by brand aspects relating to the architect / developer and the sentiment being low risk and maximum protection – continued this amenities on offer. Interestingly, many Indians are also increasingly year as well, which is understandable because there is only a modest purchasing luxury properties abroad in places such as Singapore, improvement in the economic climate. In 2012, allocation to debt London and Dubai. Financing purchases of luxury homes is not very continued to be significant; real estate too retained its flavour. popular. In fact, exclusivity is the name of the game even on marketing A majority of the respondents said that they would continue with the luxury real estate. Developers resort to whisper marketing, exclusive same approach next year as well, but may increase their exposure to invitations and other techniques akin to what the world’s most real estate. Traditionally, investment in real estate is seen as medium exclusive clubs do to get members (For details, see special focus risk in India but what our survey this year also suggests is that people on luxury homes). are increasingly capitalising on opportunities such as distress sales as part of their short-term investments. Clearly, this is a reflection of the We also looked closely this year at estate planning. Estate planning, low confidence that they have in an early economic recovery. we discovered, is at a very nascent stage in India. In fact, even the practice of writing Wills is not widespread among the wealthy! An encouraging phenomenon this year was the gradual improvement Because many family-owned businesses are traditionally passed on to in business confidence. Although the economic climate remains the next generation, the premium is on secrecy and trust; hence, it is, subdued and businesses are still hurting due to consumer caution and traditionally, the family’s chartered accountant or lawyer who also weak demand, there has been an increase in the money ploughed doubles up as an estate planner. Nevertheless, we believe that the back by ultra HNIs (both Inheritors and Self-made) into their primary reliance on family CAs / lawyers may be decreasing as the ultra HNI business (over 30 per cent in 2012 compared with around 24 per cent becomes more aware of the nuances of estate planning and the niche in 2011). Unlike last year, a majority of the respondents said that products and services that are being offered by professional estate they had ploughed back over 30 per cent of their income into their planners. (For details, see special focus on estate planning). primary business. As we had opined last year, it is tempting to dismiss the economic Last year, we had looked extensively at two segments, luxury cars travails of the short and near term as by-products of global economic and education. We had found that in both cases although the Indian integration and continue to harp on the bright long-term picture for ultra HNI is extremely conscious of the uniquely Indian setting that India. Clearly, the events of the last two years have severely dented he lives in, he is also increasingly thinking like his global peers. Thus, the confidence of the business class in policy makers. “I feel the exclusivity is the most important criterion be it their choice of car country requires unified political cohesion or vision to move in the 13 | T.O.P. India - Kotak Wealth & CRISIL Research
  • right direction towards economy. The political will is missing,” one respondent noted in this year’s survey. It is important that liberalisation of the economy is further intensified so that India can again regain the confidence of both domestic and foreign investors, and the economy can bounce back and sustain a higher growth spiral. This will, in turn, vastly increase opportunities for more people to become rich and join the ultra HNI club. The last two years have laid threadbare many of the problems besetting economic progress, be it policy logjam, delays in project clearances etc. If policy makers do not grasp the bull by the horns now, there is a danger that the hope and hype that was generated about India both globally and domestically in the boom years from 2003 to 2008 will remain just that: hype. T.O.P. India - Kotak Wealth & CRISIL Research | 14
  • SPENDING PATTERNS
  • SPENDING PATTERNS Downturn effect: Non-discretionary spend rises; caution creeps into discretionary purchases home theatres, top-end cars, yachts, aircraft etc.) until they get the sense that an economic recovery is well underway. The popular adage ‘What’s good for the goose is good for the gander’ Last year, in percentage terms, spending as a proportion of income is certainly not applicable to the spending habits of an ultra HNI. was up nearly 6 percentage points to 28.3 per cent. Reflecting the Here, exclusivity is the name of the game. caution on spend, particularly on discretionary purchases, this year that proportion is 29.1 per cent, only a modest 1 percentage points rise. As an ultra HNI moves up the pecking order within the rarefied ultra HNI surroundings, his items of non-discretionary spend tend to rise The Self-made spent more in percentage terms, but not by much: quite disproportionately. the difference with both Inheritors and Professionals was only a few basis points. These two factors together drive what are perhaps the two fundamental categories of ultra HNI purchases: luxury products and Last year, both Inheritors and Self-made increased spending by cutting luxury experiences. back on investments in primary business and philanthropy, whereas the Professional did that by dipping into his savings. This year, there Luxury products include top-end cars such as a Lamborghini, Rolls is a sea change in this regard. Among Inheritors and Self-made, Royce, Aston Martin or a luxury watch such as Patek Philippe, Breitling, investment into primary business has gone up substantially. In fact, Panerai or Oris. as a proportion of income (31.2 per cent), it is the highest ever in the three years since we began this annual survey. Both the Inheritors On the other hand, a luxury experience could be, for instance, and the Self-made have done this largely at the expense of a customised stay at any luxurious resort in Machu Pichu in Peru or investments in personal wealth. Understandably, for the Professional, even an exclusive safari complete with all the luxury paraphernalia, the proportion of investments in personal wealth is far higher (slightly deep in the jungles of South Africa. over a quarter of their income) because investment into primary business is not a significant activity for them. For the economy, the fact So it was understandable that last year most respondents dismissed that the ultra HNIs, most of whom are entrepreneurs or business the possibility of any scaling down on their spending because the families, are reinvesting into their business is certainly an encouraging economic climate both globally and domestically was subdued. Not sign in view of the sharp decline in private sector investments in the too many expected the economic downturn to continue for long and last couple of years. It is perhaps an early signal of the turnaround were treating it as just a passing phase. in private sector investments. This year, the response was not as decisive, revealing a far greater Change in spending habits degree of uncertainty on the economy. Ultra HNIs have not stopped An interesting finding this year is the Professional appears to be very buying gold or diamond jewellery, apparel, luxury watches, high-end clear on how much he wants to spend: Across the three years of our mobiles and electronics. But in this year’s survey more people, survey, we found that his proportion of spend as a percentage of compared to last year, seemed to allude to the possibility of income hovers around 28-29 per cent. consciously postponing high-end discretionary purchases (private 17 | T.O.P. India - Kotak Wealth & CRISIL Research
  • Unlike the Inheritor and the Self-made, the Professional is not as overwhelmingly consumed by the desire to generate and accumulate wealth for his progeny. Professionals place a far greater premium on ABOUT 1/3 rd OF ULTRA HNIs INDICATED CHANGE IN SPENDING PATTERN IN 2012 good education and hard work and encourage their children to achieve success on their own. Yes No Therefore, if required, the Professional dips into other heads such as savings and investments for personal wealth to maintain his lifestyle. Expenses This was very evident last year when the Professional’s proportion of savings dipped by nearly 3 percentage points. By contrast, the proportion of spend is far more erratic for both the Charity 32.8% 67.2% 17.2% 82.8% Inheritor and the Self-made: on an average, it has varied from 20-22 per cent in 2011 to over 29 per cent in 2012. Instead, what the Inheritor and the Self-made appear to have maintained fairly constant across all three years is investment into the personal business. Clearly, this is because their earnings are generated Growing Wealth Savings 23.3% 76.7% 32.2% 67.8% primarily from their businesses. Both the Inheritors and the Self-made reinvest around a third of their income back into their business. This year’s survey also buttressed our previous finding that the Professional is far more inclined towards charity than the others. We found last year that the Professional’s savings shrank nearly Investment Others 34.6% 65.4% 27.7% 72.3% 3 per cent even as his contribution to charity / philanthropy rose. This year too, the Professional allocated close to 6 per cent of his income to charity, nearly the same as last year’s levels. To sustain their high-end lifestyle, ultra HNIs as a class continued to spend a significant portion of their overall expenditure on domestic and international branded wear, customised holiday packages, luxury watches, jewellery, household electronics, diamonds and precious stones. A third of the respondents suggested that their spending had been adversely hit by around 20-25 per cent. In fact, during a downturn all categories indicated that they spent less on luxury purchases (discretionary spend, which normally includes premium cars, international designer apparel, international travel etc.) By contrast, non-discretionary spending has hardly been impacted. T.O.P. India - Kotak Wealth & CRISIL Research | 18
  • NON-DISCRETIONARY SPENDS REMAIN UNABATED 41.2% LIFESTYLE SPENDING CONTINUES EVEN DURING DOWNTURN 33.2% 35.0% 51.0% 14.0% Apparel/ Accessories Discretionary 58.8% 66.8% 29.9% 61.0% 53.0% 15.2% Exclusive holiday packs 9.1% Home decor/ Electronics Non-discretionary 31.8% 36.1% 49.6% 14.3% Jewellery/Diamonds/ Precious stones Normal times Downturn 36.1% In a normal year, the discretionary to non-discretionary spend ratio is around 41:59; during a sustained downturn, our survey found, that changed to 33:67. Again, the Professional is far less likely to postpone luxury purchases even in a bad year, compared with the Inheritor and the Self-made. 19 | T.O.P. India - Kotak Wealth & CRISIL Research 45.9% Luxury watches 18.0% 31.4% 34.2% 34.4% Others Discretionary Non-discretionary Will not spend / unlikely to spend
  • APPAREL / ACCESSORIES EMERGES AS KEY SPENDING AVENUE 7 % .3 7.2% Jewellery/Diamonds/ Precious stones Exclusive holiday packs 7.7% 52.3% 12.9% Home decor/ Electronics Luxury watches Apparel/Accessories 12.6% Others Even during a downturn, apparel and electronics continue to be the most sought after avenue to spend for the ultra HNIs. T.O.P. India - Kotak Wealth & CRISIL Research | 20
  • The number of ultra HNIs who prefer to shop in India, even for global As more foreign luxury product manufacturers set up shop in India, luxury brands is also growing steadily. As most luxury brands are now concerns regarding quality and variety of the products are also slowly available in India, there is less reason to shop abroad, particularly for fading. But the rupee dollar rate is also an important determinant in ultra HNIs in the metros. The availability of luxury brands declines as whether to make purchases in India or overseas. Last year, the rupee one moves away from the metros, so a lot of ultra HNIs from the was very weak against the dollar, and that played a part in deciding non-metros combine overseas vacations or business trips with whether to buy luxury products abroad or in India. shopping for their favourite international products (which happens to be international designer apparel). INDIA: PREFERRED SHOPPING DESTINATION WITH IMPROVED ACCESS TO LUXURY BRANDS India Abroad 74.9% 72.7% 25.1% Home decor/ Electronics 67.0% 27.3% Jewellery/Diamonds/ Precious stones Apparel/ Accessories 64.4% 35.6% Others 56.1% 43.9% Exclusive holiday packs Source: T.O.P. India - Kotak Wealth & CRISIL Research 21 | T.O.P. India - Kotak Wealth & CRISIL Research 33.0% 50.0% 50.0% Luxury watches
  • Gifts and travel The ultra HNI continues to spend on immediate family, close friends Despite the staggering rise in gold prices during the year, gold (through gifts) and celebrations of family occasions. Among the items continues to be bought primarily for beautification purposes. It is no of spend on immediate family, diamond and gold jewellery continues secret that, since time immemorial, Indians of all hues and shades to be the most popular followed by cars and clothes. In addition to have been enthralled by gold jewellery and continue to be the large luxury watches, mobiles are becoming increasingly popular as gifts to consumers on the planet of the yellow metal in jewellery form. close friends. JEWELLERY IS THE MOST GIFTED ITEM TO FAMILY MEMBERS 42.6% Jewellery 16.5% Mobile Others Cars and bikes Watch Tour/ Trip Voucher Flat/Villa Source: T.O.P. India - Kotak Wealth & CRISIL Research 15.5% 14.4% 5.9% 3.4% 1.7% *Others include: Apparel, Electronics, Gift vouchers, Household accessories T.O.P. India - Kotak Wealth & CRISIL Research | 22
  • Family occasions such as birthdays, weddings and anniversaries, with celebrity performers / party hosts who may either be direct business launch or success parties etc. continue to be celebrated in a acquaintances or friends. Due to the scale of the party, the entire big way. Even for exclusive small-affair parties people are increasingly arrangement may not be handed over to a professional event seeking expertise to make it a success. The concept of using event manager on professional terms. Instead, the celebrity / friend manages managers for family functions is gaining in popularity but only the show himself. But here too, considering the social peer pressures gradually (see chart below). One reason for this is that for small family that the ultra HNI operates under, it is only a matter of time before functions (such as birthdays) most ultra HNIs get in touch directly professional event managers make greater inroads. TYPES OF EVENTS ORGANISED BY ULTRA HNIs EVENT MANAGERS GAINING HIGHER GROUND Yes No Adhoc Regular Launch party 62.0% 38.0% Launch party Wedding or wedding related ceremonies 58.0% 42.0% Wedding or wedding related ceremonies 38.1% 61.9% Celebrity participation 54.0% 46.0% Celebrity participation 44.7% 55.3% Business/ Professional success 53.0% 47.0% Business/ Professional success Anniversary Birthday of family member 48.0% 45.0% 35.6% 37.0% 52.0% Anniversary 22.4% 55.0% Birthday of family member 22.7% Others Source: T.O.P. India - Kotak Wealth & CRISIL Research 23 | T.O.P. India - Kotak Wealth & CRISIL Research 64.4% 63.0% 77.6% 77.3% 75.0% Source: T.O.P. India - Kotak Wealth & CRISILResearch 25.0%
  • The ultra HNI is an avid traveller, be it for business or leisure or when As a pastime, travelling is closely followed by dining out and reading. possible for both. In last year’s survey, we had noted that vacationing The ultra HNIs travel overseas once or twice a year. On an average, the was a top priority for them because many of them have slogged it out Professional sets apart 1-2 weeks for travelling and vacationing with in the workplace to reach the heights that they have. family; nearly 2/5th of Inheritors and Self-made said that they vacationed for about a week in a year. The most preferred destinations Unlike the Inheritors or the Self-made, who own businesses and for Inheritors and Self-made are beaches and weekend getaways perhaps employ others in large numbers to run them, workplace close to their place of stay whereas islands or mountaineering / treks burnout is an indisputable aspect of life that the Professionals are the top preferences for Professionals. The downturn has certainly confront. A greater number of Professionals, compared with both the not spoilt the vacation plans of ultra HNIs; only 13 per cent of our Inheritors and the Self-made prefer exclusive luxury holiday packages respondents said that it had. to take a much-needed break from the workplace and drown away their worries. VACATION PLANS UNCHANGED: BEACHES CONTINUE TO BE MOST PREFERRED VACATIONING LOCATIONS Beach locations 22.7% Weekend Getaways 16.8% Islands Mountains / Treks 14.3% 14.3% Religious / Spiritual destinations 10.4% Others 9.6% Shopping destinations 7.9% Spa Vacations 4.0% Source: T.O.P. India - Kotak Wealth & CRISIL Research T.O.P. India - Kotak Wealth & CRISIL Research | 24
  • Among overseas destinations Europe, New Zealand, Australia, and South Africa are favourite vacation destinations. Europe, primarily Spain, Italy, Switzerland and New Zealand are popular vacation spots for adventure sports, while South Africa tops the list for wild life or safari experiences. Amongst beaches, Mauritius is the most popular destination. Interestingly, many ultra HNIs said that they were as keen to visit tourist destinations in India as those abroad. Popular weekend getaways in India are Ooty and Coorg for ultra HNIs based in the South and Ladakh, Darjeeling, Shimla, Jaipur and Udaipur among ultra HNIs in the North and the East. One of the fastest growing segments in luxury spending is the concept of a luxury experience. A luxury experience dovetails exclusive customised services such as spas, safaris, exotic island tours and underwater vacationing at leisure destinations such as Machu Pichu in Peru or the Maldives. A number of luxury product makers are tapping into this need for exclusivity and offering ultimate luxury experiences such as visits to the premium car plant to see the status of the car that the ultra HNI has ordered and combine it with a special event such as adventure sports / river rafting etc at nearby luxury locales. 25 | T.O.P. India - Kotak Wealth & CRISIL Research
  • SPECIAL FOCUS: LUXURY HOMES
  • SPECIAL FOCUS: LUXURY HOMES As one of the world’s oldest civilisations, India has a very rich and In their search for the exclusivity that sometimes eludes them at home, ancient heritage as far as luxury homes are concerned. Ancient written an increasing number of ultra HNIs are also scouting and buying records of various Chinese and Arab travellers during medieval times luxury homes overseas. Whatever the reason and wherever the and British historians (when the British ruled India) describe in marvel- purchase, the guiding factor is exclusivity, which in turn subsumes lous detail the stunning grandeur, ornate architecture and multitude two aspects: of riches that adorned the royal palaces and the almost godly life that • Location the rich and the rulers led in those days. The erstwhile palaces in • Branding Jaipur, Udaipur and Mysore – whose magnificence and architectural splendour thrill many visitors even today, and many of which have We have analysed both these aspects in greater detail and also today been converted into five-star luxury hotels – are stunning explored the reasons that are driving more and more ultra HNIs to buy examples of the luxurious tastes that India’s ancient rich had. homes overseas. Even today, some of the most expensive and luxurious buildings on the planet are in India – two private residences located in Mumbai have been valued by credible sources as among the world’s most expensive properties. Some more residences that are aimed at rivalling the existing ones in terms of sheer size and luxury are currently under construction in the city. Vis-à-vis the past, though, one aspect is very different today. Unlike the vast tracts of land that the ancient rulers utilised to set up their luxurious abodes and indulge in their most lavish tastes, there are no vast open spaces available in prime locations in the country for today’s ultra HNI even if he or she could afford to buy them. One way in which India’s ultra HNIs have overcome that handicap and still tried to establish exclusivity (which is at the core of their behaviour) is going skywards. This is a growing trend among top industrialists and the cream of the ultra rich in cities such as Mumbai and Bengaluru, home to some of the country’s top entrepreneurs and business families. Huge penthouses, high up in the sky or multi-storied towers housing just one family with different floors dedicated for different purposes (such as parking area, gymnasium, library, swimming pool, dining and reception area, lounge and party area, etc.) are increasingly becoming the norm rather than the exception. 27 | T.O.P. India - Kotak Wealth & CRISIL Research
  • Location: The foremost dynamic The single, most important dynamic driving the modern Indian ultra So every city has its prime localities where the ultra HNIs throng to buy HNI’s purchase of a luxury home in India is location – every other residential property and flaunt their lifestyle. In Mumbai, the places consideration relating to size, furnishing, architecture and interior where the high and the mighty would give almost anything to own a decorations is relegated to the background compared to this aspect. property include Cuffe Parade, Napeansea Road, Carmichael Road, For ultra HNIs it is not just about owning a luxury home, it is also Altamount Road, Malabar Hill, Worli and Bandra. Some of the other about the exclusivity that the address affords. most expensive residential localities in the country are Aurangazeb WHAT DOES A LUXURY HOME MEAN TO AN ULTRA HNI? 25.0% Location 18.0% Interiors 16.0% Size 15.0% Exclusivity 13.0% 8.0% Architectural significance Automation 5.0% Price T.O.P. India - Kotak Wealth & CRISIL Research | 28
  • Road, Amrita Shergill Marg and Safdarjung Enclave in New Delhi, Surjapur and Koramangla in Bengaluru, Boat Club Area and T-Nagar in Chennai and Alipore in Kolkata. LUXURY HOME EMBARKS A STATUS QUOTIENT For the right location, the ultra HNIs are sometimes willing to pay A status symbol An investment Style statement Others staggeringly high prices, irrespective of the general state of city’s property market. For instance, according to media reports, a sea-facing duplex in Worli was sold for around ` 43 crore, valuing the property around ` 1.18 lakh per sq ft. That made it one of the most expensive 58.6% per-sq-ft apartment deals the country has ever seen and came at a time when the country’s realty market is in general limbo. Exclusivity in location, for the ultra HNI, need not mean only the location. In Mumbai, for example, along with the location, a sea-facing 4.3% view is the most sought after. Conversely, a location loses some of its sheen if the sea-facing view is lost; in Mumbai, some luxury buildings in normally sought-after areas are now becoming unattractive because their sea view is being blocked by new, taller skyscrapers that are coming up in the vicinity. No matter which city they live in (metro or non-metro) and whatever their age group, the overwhelming sentiment associated with the ownership of a luxury home is the same. A luxury home is a status symbol to tell the world that one has arrived. For nearly half of the Inheritors and the Self-made, owning a luxury home was a status symbol. “I would like to own a home in World One (Mumbai) as it is a very exclusive residential tower. Having a house there gives great status value,” a Mumbai-based ultra HNI said. By comparison, investment plays on the Professional’s mind a lot more compared to the others and fewer Professionals harped on the status symbol. Only 30 per cent of the Professionals said it was a status symbol whereas another 20 per cent said it was an investment. “I associate a house in terms of investment. Capital appreciation is key,” one Delhi-based Professional remarked. 29 | T.O.P. India - Kotak Wealth & CRISIL Research 13.0% 24.1%
  • MAJORITY PREFER A LUXURY HOME WITHIN THE CITY 45.2% 6.7% 20.7% 6.7% 20.7% Upmarket within the city Upmarket outside the city limits A remote place A place in the heart of the city Exotic location Majority of the ultra HNIs already reside in a luxury home in an Nearly half of the Inheritors and the Self-made said that their luxury upmarket area within the city. However, Professionals do not have home should be in an upmarket locality within the city. In sharp much affinity in having their luxury home within the city unlike the contrast, nearly 35 per cent of the Professionals wanted it to be an Inheritors and the Self-made. upmarket area, but outside the city limits; about 20 per cent preferred an upmarket area within city limits. A majority of Pune’s ultra HNIs too preferred an upmarket area outside the city limits. T.O.P. India - Kotak Wealth & CRISIL Research | 30
  • Branding closely follows location as key driver After location, comfort and independence are the most important For Inheritors and Self-made, independence also means freedom to factors when purchasing and designing the interiors of their home. build; they want to buy land in the place of their choice and then “Plus providing some peaceful surroundings (not the noise and buzz of construct a customised, standalone villa there or even a multistoried the city). It need not be on the beachfront, it can be just a 10 minutes tower as some of India’s wealthiest have done in recent times in drive from the beach. In addition, it should offer the privacy from all Mumbai and Bengaluru. By contrast, the Professional prefers to buy sides. My neighbour should not be able to see inside my house,” one of a readymade villa / bungalow or even an apartment in a multistoried the respondents commented. complex. ULTRA HNIs PREFER BUILDING A CUSTOMISED VILLA ON THEIR OWN LAND 1.0% 4.0% 1.0% 1 10.0% 36.0% 48.0% Buy a land and build a customised villa in India Readymade villa / bungalow in India Readymade apartment in India Buy a land and build a customised villa abroad Readymade apartment abroad Readymade villa / bungalow abroad 31 | T.O.P. India - Kotak Wealth & CRISIL Research
  • interiors are also in great demand. European designers, particularly PROFESSIONALS PREFER READYMADE VILLA / BUNGALOW Italian designers, are some of the most sought-after by Indian ultra HNIs. So, branded designer homes are increasingly gaining prominence as living in a house designed by an ace architect / designer satiates the ultra HNI’s desire for exclusivity within their social circles even 1.4% while simultaneously spicing up their comforts. Many renowned real 2.8% estate developers are, unsurprisingly, catering to this demand by 6.4% 4.2% 8.5% 10.6% 38.0% roping in world-class designers for their exclusive luxury projects. 5.9% For example, Lodha, Sunteck, etc. have tied up with renowned designers such as Armani, Jade Jagger, etc. to offer unique designs 17.6% and craftsmanship. 29.8% 41.2% 45.1% 53.2% The micro-focus of ultra HNIs on designers and designer paraphernalia for interiors also means that they are also clued in on the latest trends in these areas. So they make their best, informed choices to ensure that they get the amenities and the lifestyle that they want and ask for Self-made 35.3% changes wherever needed. Inheritor Professional Buy a land and build a customised villa in India Readymade villa / bungalow in India Readymade apartment in India Buy a land and build a customised villa abroad Readymade apartment abroad Readymade villa / bungalow abroad ULTRA HNIs PREFER RENOWNED ARCHITECTS / DEVELOPERS 53.0% 21.0% Bathroom, floor fittings, etc. Thus, building a customised villa on own land emerges as the most desirable form of luxury home especially amid Inheritors and Self-made. The stature of the architect or the developer is particularly important Architects / developers / designers 26.0% Furnishing for the ultra HNI if they are purchasing a readymade villa. Interior designers who can design the most contemporary yet luxurious T.O.P. India - Kotak Wealth & CRISIL Research | 32
  • In terms of amenities, a personal swimming pool and a mini theatre are Touchpad-controlled smart homes, health spa, multiple parking almost-certain demands of all ultra HNIs across all age groups, cities space, multiple swimming pools, yoga studio, multiple elevators, and categories. In Aurangabad, Chennai and Coimbatore, the first vehicle maintenance facility, a helipad on the roof etc. are among choice of most respondents between these two choices was the other amenities that the ultra HNIs like to install in their luxury homes swimming pool, perhaps because of the hot and humid climate that or mansions. prevails in these cities for most part of the year. MOST PREFERRED AMENITIES IN A LUXURY HOME: PERSONAL POOL, MINI THEATRE 23.0% 17.0% 16.0% 16.0% 14.0% 9.0% 5.0% Personal swimming pool/ Plunge pool Mini theatre Area to organise events and concerts 33 | T.O.P. India - Kotak Wealth & CRISIL Research Private gym Private spa /Sauna Outdoor kitchen/ Gourmet kitchens A wood panelled library
  • The world is my home Propelled by increasing globalisation and India’s growing integration An added attraction is that in today’s globalised world – where many with the world economy, there is a small, yet growing tribe of Indians of the ultra HNIs are jetsetters, not only travelling but also sometimes who are buying luxury homes in other parts of the world. Many factors living in different cities globally – owning a home overseas not only are driving this trend. makes eminent sense but is also a necessity. Most ultra HNIs send their children abroad for study, so having luxury property in those locations For one, due to the high density of population and limited availability is convenient so that their children can live and study in the same of land, privately owning huge tracts of property is today almost next kind of luxury that they are used to at home. Due to the rapid spread to impossible in key Indian cities such as Mumbai and New Delhi. of Indian diaspora across all corners of the globe, there is also an By contrast, expansive tracts of land that can accommodate huge increasing awareness among Indian ultra HNIs of prime luxury lawns, courtyards, swimming pools, tennis courts etc. is more easily property locations abroad. Many ultra HNIs have close relatives or available in many American and European cities, due to much better friends who are settled overseas; constant, extensive feedback from city planning and lower population density. them keeps ultra HNIs abreast of key property price trends and enables them to spot attractive buying opportunities in important ULTRA HNIs ALSO HEADING OVERSEAS FOR LUXURY HOMES overseas locations. What makes an overseas luxury property purchase decision easier today is also the fact that valuations in Indian cities such as Mumbai and New Delhi are now so high that they are comparable to valuations in some of the top property locations worldwide. Mumbai, for instance, is among the most expensive cities of the world. Some global 97.9% studies reveal that prices in Mumbai are now comparable to property prices in US cities such as Los Angeles and Miami, European cities such as Rome and emerging market locations such as Istanbul, Rio de Janeiro and Sao Paulo. Many of these emerging market cities are also 2.1% fast becoming important centres of finance and trade either regionally or globally and ownership of luxury properties in them is an alluring prospect. All other things being equal, factors that come into play in the purchase decision include, among others: the extra lifestyle benefits (such as a clean environment, better managed public infrastructure, entertainment facilities, health and sanitation) that accrue in cities such as London and New York; and the safe haven status that some of INDIA ABROAD these cities offer (because they have been able to better withstand global financial and economic turmoil). T.O.P. India - Kotak Wealth & CRISIL Research | 34
  • In fact, there is evidence to suggest that, post the global financial crisis, for giant domestic or top multinational corporations in various the trend of buying a second or a third luxury home abroad has only global locations. In the course of their stay, they seek out attractive risen worldwide. This indicates that the global wealthy are increasingly investment opportunities, although there is a miniscule set among holding their wealth in tangible assets to offset risks arising from them that buys a luxurious property in a particular city for a life global political and economic uncertainty. In India, ownership of real post-retirement because of the quality of living that it offers. estate has always been a safe haven play because real estate has always delivered attractive returns over the long term. Now, the ultra These overseas properties also serve another very useful purpose: they HNIs are extending their horizons to overseas locations, taking serve as vacation pads for family and close friends. Most ultra HNIs advantage of the relatively attractive valuations and the other make it a point to visit their second (or third) luxury homes at least intangible positives that these locations bring to the table. 2-3 times a year and spend a week to a fortnight there. Currency fluctuations play an important part in the timing of a This trend of purchasing property overseas is only set to grow as the purchase. As far as the rupee is concerned, an appreciation of the number of ultra HNIs who can afford, and want to buy property, rupee is advantageous for the Indian buyer and vice versa. But ultra increases in future. The only dampener to this otherwise buoyant HNIs who hold their money overseas in different currencies, for trend is the regulations that governments in many countries are operational reasons or otherwise, sometimes take advantage of bringing in on the purchase of second homes and luxury property to volatility or shifts in other major currencies to make beneficial control the rise in residential prices. purchases. In recent years, one major attraction for buying property in London has been the depreciation of the pound against the dollar. Some of the fanciest districts in the world, such as Kensington, Belgravia or Holland Park in London or prestigious locations such as the Burj in Dubai and Nassim Road in Singapore are among the most popular global locations for Indian ultra HNIs to own luxury residential properties. Needless to say, in line with their social standing, their homes in these overseas locations too are as tastefully decorated and as diligently maintained as their primary luxury homes. Interestingly, from a behavioural angle, the nature of the property that ultra HNIs seek in these overseas locations differs according to whether you are an Inheritor, a Self-made or a Professional. Inheritors and Self-made are more likely to purchase land and hire renowned architects and interior decorators to build customised villas that incorporate their luxurious tastes. This is something the Professionals are not very enthused about. In fact, what drives their purchase behaviour is investment opportunity. Many of the Professionals work 35 | T.O.P. India - Kotak Wealth & CRISIL Research
  • Family consensus is key to purchase decision The decision to purchase a luxury home is also arrived at after a lot of different family members before they make a purchase. They are very thought. After all, in major Indian cities today, the purchase of a luxury interested in who the interior designer is, what amenities we are home can lighten the pocket considerably. offering and which country we are importing it from. For interiors, Italian and some European designers are highly favoured,” one For purchase of luxury residential property, a real estate agent of developer said. repute with a lot of understanding of the specific locality and local market conditions and the ability to network well is still the most “They (ultra HNIs) look out for exclusivity in almost everything, be it sought after. Then, there are others such as family friends who may wood from a specific forest area or marbles from Italy within their be in the know of a particularly good property, or who may be willing homes. In that sense, they want to know the very minute details of to sell, or even financial advisors/wealth managers who may have furnishings,” another Mumbai-based builder said. information from their client network. Whisper marketing or invitation buys are the most common strategies that builders or their agents employ to market luxury homes. After all, nothing can arouse the curiosity and interest of a ultra HNI more than a pitch that he will own something that very few others will. Often, the ultra HNI does not have to go scouting for a house himself. “It’s the other way round,” one of them commented, when asked REPUTED REAL ESTATE AGENTS MAINLY ADVISE THE ULTRA HNIs Reputed real estate agent Friends / Family reference Financial Advisor / Wealth Manager Lawyers' recommendation Ads in Business and property magazines Internet property listing how he searched for his home. “Known people, some business acquaintances, and wealth management companies approached me.” 1.6% 9.3% To lure ultra HNIs to their luxury projects, developers try to showcase legacy in terms of past experience in building noteworthy structures 14.0% or association with established brands. New entrants in the market mainly associate with renowned branding partners, designers etc to attract attention. “We are attaching ourselves with ace architects / designers to attract market attention and establish credibility,” an upcoming developer said. 39.0% 21.5% 14.6% Getting the ultra HNIs to finally purchase a property is also arduous, patient work, considering that the value of the property will be a few crores at the very least. “The rich mostly do multiple visits with T.O.P. India - Kotak Wealth & CRISIL Research | 36
  • The key decision-maker, however remains the immediate family that An interesting difference here was that over 50 per cent of the will eventually stay in the house. Some degree of consensus is sought Professionals said the final decision was made jointly with their to be achieved within the family, but the final decision remains that of spouse, only around 20 per cent of the Inheritors and Self-made said the ultra HNI himself, at least in case of Inheritors and Self-made. “I am the same. One probable reason for this is that both the Inheritors the sole decision-maker for choosing the property. Dealings are done and the Self-made are perhaps larger families with more than one in consultation with my lawyers,” one ultra HNI, an Inheritor, stated. generation of individuals staying together. In the Professional’s case, it is mostly a nuclear family, both the husband and the wife are more often employed and highly ranked career professionals. DECISION-MAKER Surprisingly, nearly 70 per cent of the respondents in Mumbai said that the final choice was theirs alone, whereas in Pune a majority said Myself that the final decision was jointly that of the husband and the spouse. In Bengaluru, only 10 per cent of the respondents said the decision Myself, my spouse and children Me and my spouse 34.8% was made along with the spouse; around 50 per cent said it was theirs alone. Finally, compared to the premium housing segment, finance penetration is far lower in luxury homes, which is a bit of a surprise 26.0% 22.2% considering the cost of luxury homes. This trend is quite unlike that in luxury cars, where even the richest of ultra HNIs take recourse to loans during purchase to take advantage of My family and my financial advisor 9.6% 6.7% 0.7% My family and my lawyer Others 37 | T.O.P. India - Kotak Wealth & CRISIL Research tax benefits and depreciation. The Professional, on the other hand, prefers to take loans to finance the purchase.
  • INVESTMENT TRENDS
  • INVESTMENT TRENDS Despite global economy blues, 2012 signalled a return to wealth creation The recovery in the US economy, combined with expectations of a Real estate prices were generally stable with an upward bias in all gradual pick-up in global growth and a highly expansionary monetary major territories including India in 2012. Gold and silver too gave policy in most developed countries combined to reduce risk aversion around 13 per cent returns in India. The price of gold corrected sharply across most asset classes. Returns from most asset classes either went in the early months of 2013, but domestic prices have been stable for up or were stable in 2012, and this encouraging trend continued in the the past month or so. first quarter of 2013 in most markets. Investment trends in 2012 In fact, even though income growth was slower due to subdued The key source of wealth continues to be success in primary business, economic growth in most countries and weak demand (that hurt followed by real estate and investment in equity. This year, many businesses), wealth creation continued unabated during the year respondents also identified income from sale of business as a major because returns from almost all asset classes were attractive be it income-earner, but this appears to be only a one-off phenomenon, equities, bonds or commodities. perhaps indicating that some ultra HNIs have chosen this period to exit unfavourable businesses. The pick-up in wealth creation in 2012 was illustrated by the nearly 16 per cent increase in the combined net worth of the billionaires in Both the Inheritor and the Self-made asserted that the bulk of their the Forbes List 2013. It was quite a contrast to the previous year, when wealth came from income from primary business and real estate (also the combined net worth (Forbes Billionaires 2012) grew by a mere inheritance, in the case of the Inheritor), whereas the Professional 2 per cent, one of the slowest in the past few years. Moreover, the indicated that the biggest contribution was from equity. The Profes- number of gainers in the Forbes List 2013 was four times that of the sional appears to be far more confident in his ability to generate number of losers, compared with an equal number of winners and returns even from a lacklustre market. His propensity to take greater losers the previous year. risks in the market is also because he is generally highly educated, and has the experience and expertise to understand the stock market Much of this change was due to the performance of various asset classes. Global equity markets fared well. The Indian market shrugged off its dismal performance in 2011 and was one of the best global performers in 2012, with the Sensex returning 26 per cent and the Nifty 28 per cent. Other Asian markets too did well in 2012; both the Hang Seng and the Nikkei gave nearly 23 per cent returns. In the US, the Dow gave 8 per cent and the Nasdaq 16 per cent. On a yearly basis, bond yield in global bond markets have been fairly stable for the past few years, and that trend has continued. In 2012, the average yield on the US 10-year g-sec was 1.9 per cent, close to the previous year’s average. In India, the average yield on the 10-year g-sec was 8.1 per cent, nearly the same as the previous year. 39 | T.O.P. India - Kotak Wealth & CRISIL Research better than many others.
  • SOURCES OF WEALTH Success in primary business Real estate Equity Sale of business Others Success in primary business Real estate 40.4% 14.7% 7.5% 24.6% 12.8% Equity Sale of business Others T.O.P. India - Kotak Wealth & CRISIL Research | 40
  • Although the economic climate remains subdued and businesses are Unlike last year, a majority of the respondents said that they had still hurting due to low consumer confidence and weak demand, there ploughed back over 30 per cent of their income into their primary has been an increase in the money ploughed back by both Inheritors business, indicating a slight improvement in business confidence and Self-made into their primary business (over 30 per cent in 2012 compared to last year. Compared to last year, therefore, investment towards growing personal wealth declined in 2012 while allocation to compared with around 24 per cent in 2011). savings and charity either remained the same or went up marginally. INCOME ALLOCATION Expenses 29.1% 28.3% Investment into primary business Investment for growing personal wealth 31.2% 24.2% 16.0% 24.1% Savings Charity Others 5.4% 4.4% 2.6% 2.7% 15.7% 16.3% 2012 2011 Despite the marginal improvement in business confidence, many still did not feel confident enough about the economic climate. Therefore, ‘low-risk’ and ‘capital protection’ continued to be catchall phrases pertaining to approach to investments this year too. Low-risk instruments such as fixed deposits continued to be popular with ultra HNIs. 41 | T.O.P. India - Kotak Wealth & CRISIL Research
  • APPROACH TOWARDS INVESTMENTS 74.6% 25.4% Self-made 70.2% 29.8% Inheritor 41.2% Opportunistic 58.8% Disciplined / Balanced Professionals 28.9% 71.1% Overall ultra HNI During a period of volatility, the foremost consideration behind approach despite the volatile market conditions. investment (including, perhaps, tax planning aspects) is regular income and protection for the future; growth is a secondary concern. “While equity markets have given better returns, we are being This is quite unlike the thinking in business where growth and profits, cautious in planning our investments; real estate continues to be and not protection is the chief objective. my favourite,” one respondent stated. Nearly 60 per cent of the Professionals and over 70 per cent of both Last year, we found that younger, established ultra HNIs (in the 31-40 Inheritors and Self-made said that they are following a disciplined age group) were more opportunistic than the older ones, who approach to investments. There were also some interesting regional focussed more on capital protection and adopted a disciplined differences. Among the metros, ultra HNIs in Mumbai and Delhi were approach. With discipline and caution continuing to rule the roost, highly risk-averse compared with those in Kolkata and Chennai. many ultra HNIs preferred to adopt a long-term approach to invest- Among non-metros, a high percentage of our respondents (nearly ments rather than a short-term one that is more characteristic of an 50 per cent) in Ahmedabad and Lucknow followed an opportunistic opportunistic investor. T.O.P. India - Kotak Wealth & CRISIL Research | 42
  • Risk aversion came down a little compared with last year but capital Real estate continued to be popular this year also, along with debt. protection still remained paramount. “The last two years or so, my The Professional invested the most in stocks and shares, followed approach has been defensive. The emphasis has been on capital closely by fixed deposits and then real estate. Real estate investments preservation than super-normal growth. There is no chasing of have always delivered good returns in India, so it is generally perceived equities but investing only when seen some value,” one ultra HNI to be an attractive medium-risk investment and this is indicated by remarked. data through all the three years. 2012 CHANGE IN INVESTMENT PORTFOLIO 4.0% 7.0% Alternate Assets 29.0% 30.0% Real Estate 32.0% 29.0% Debt 35.0% 34.0% Equity 43 | T.O.P. India - Kotak Wealth & CRISIL Research 2011
  • Gold / silver investments remain popular and a healthy proportion wealth to charity. Since then, a few other Indian ultra HNIs – including of the total portfolio continues to be invested in these two precious the promoter of a South India-based real estate company – have metals. Highly risky avenues such as derivatives, hedge funds and announced that they will transfer up to 50 per cent of their wealth to structured products are still a no-no with ultra HNIs. Perhaps the support philanthropic activity. experience with these products (some of which are highly complex) in 2008, mostly in the developed markets, is still too close to be So, what will 2013 be like? Well, for one, risk aversion is likely forgotten. Art as an investment continues to languish; this year, the to decrease in 2013. As the economic climate improves further, percentage of ultra HNIs who said that they had invested in art was indications are that ultra HNIs will reduce their exposure to debt lower than last year. Ultra HNIs are continuing a similar approach (primary fixed deposits) and increase their investments in real estate because many of them now believe that the economy is unlikely to next year. Inheritors and Self-made also noted that they will increase recover before the endof 2014. their investments into their businesses. Taken together, these trends indicate a gradual improvement in For wealth managers in India, the current period is only a temporary business confidence and increased risk aversion. In a volatile market, lull in an otherwise bright future. Once the economy comes back on fixed deposits, cash and gold / silver are seen as low risk. Real estate, track and the investment pie grows, opportunities will continue to ULIPs/insurance, mutual funds, PMS schemes, commodities, bonds unfold for domestic wealth managers. The number of ultra HNHs and debentures are medium risk whereas equities, currency, is expected to more than triple over the next 5 years. The current derivatives and hedge funds are generally perceived to be high risk. period can be used by wealth managers to improve their networking, develop more products suitable for the Indian market and identify Due to the focus on capital preservation, most ultra HNIs like to retain the right clients so that they will be ready to move when the market close control over their assets and their portfolio management. This is turns hot once again. particularly true of assets that they comprehend, such as real estate, derivatives, stocks and shares etc. On the other hand, they are likely to take help from experts on assets that they did not understand; it so happens that most of these assets in this category are also high risk such as hedge funds, currency and art, and are therefore less invested into. The improvement in wealth was also reflected in contribution to charity. After declining last year in percentage terms, contribution to charity bounced back this year. The percentage of income that has gone towards charity/philanthropic activity among India’s wealthy has gone up (5.4 per cent in 2012 versus 4.4 per cent in 2011). Clearly, the well-publicised drive by a globally renowned billionaire to get the wealthy to donate substantially to charity appears to be getting attention. One of the first in India to respond to this call was an IT czar, who announced that he had already transferred a portion of his T.O.P. India - Kotak Wealth & CRISIL Research | 44
  • SPECIAL FOCUS: ESTATE PLANNING
  • SPECIAL FOCUS: ESTATE PLANNING Estate planning is a process whereby a plan is created incorporating an individual's wishes regarding his/her estate and which provides WHAT IS ESTATE PLANNING? for efficient management, preservation and creation of a legacy during his/her lifetime and after. Succession planning is getting increasingly complicated and it is becoming extremely important to plan for preservation and manage- Avoid property dispute ment of one's estate. The primary goal of estate planning is to ensure that the estate of the individual passes to the intended beneficiaries Planning for future at an opportune time, often including efficient tax and succession 5.5% 10.2% 12.7% planning and avoiding or minimising court proceedings in succession matters and obtaining probates. Reduce Taxes / Legal protection In the United States, estate planning is a well-developed and widely Plan / Manage portfolio 12.6% 14.2% used concept and most wealthy families have trusts as a part of their overall estate and succession plan. In India, on the other hand, many Safety for dependents wealthy families do not yet consider it as an integral part of their planning and the concept of a professional trustee is still in its nascent stage. 29.1% This big difference in the approach to estate planning in both these countries, where the ultra HNI population is substantive, can be attributed to the existence of Estate Tax or Inheritance Tax in the U.S. 15.7% Allocate property to beneficiaries Inheritance tax, which is prevalent in a number of countries around the world, is a tax levied on the transfer by virtue of inheritance of the taxable estate of an individual on his demise. It is no surprise, therefore, that estate planning is taken very seriously by the wealthy in the U.S. Some other countries that levy estate tax or inheritance tax in various forms include UK, France, Germany, Italy, Belgium and the Netherlands. In fact, many advanced countries levy an inheritance tax or estate tax. 47 | T.O.P. India - Kotak Wealth & CRISIL Research Source: T.O.P. India - Kotak Wealth & CRISIL Research Don’t know
  • Australia, Russia and India are among a select group of nations that no “We find it difficult to convince the ultra rich about estate planning as longer levy estate tax. In India, estate tax was introduced in 1953 and they are not comfortable with sharing personal and confidential it continued for 32 years before its abolition in 1985. information,” one professional estate planner remarked. Even today, many of India’s wealthy do not even have a Will, which can Many ultra HNIs understand that an efficient estate plan will ensure lead to a number of issues at the time of succession of assets on the smooth succession of their estate to their heirs after their demise, demise of the individual. When questioned, most ultra HNIs admitted protection against any possible disputes in the future and ensure that to knowing what estate planning is, but we found that their familiarity, requirements and needs of dependent and minor beneficiaries are comfort and interaction with professional estate planners was low. taken care of when they are not around. But quite a few of them do not think that it is a very serious issue. One ultra HNI remarked: “Our family IS ESTATE PLANNING NECESSARY? structure is very linear. There is me, my father and my son. So, estate planning is not of much importance for us.” We found that his remarks were echoed across a large section of ultra HNIs. “Ours is a nuclear family, my husband is a professional lawyer, succession of my business is a non-issue. So questions of inheritance 78.5% and related things do not bother us much. Whatever legal steps are required are well managed by my husband. I think this (estate planning) is more relevant with Hindu Undivided Families and businesses,” another ultra HNI stated. After being ignored for long, estate planning is now being considered and discussed by many ultra HNIs, a lot more thanks to a number of high profile cases involving family inheritance that have come in the public domain in recent years. Many more Inheritors and Self-made 21.5% are now seriously considering estate planning to ensure that their family members do not have to face litigation or other delays for the succession of their family assets and also to protect and ring-fence their family assets. Yes No T.O.P. India - Kotak Wealth & CRISIL Research | 48
  • But even when they decide to undertake estate planning, professional wealth managers are not always the first port of call. The reason, put HAVE YOU CREATED A PRIVATE TRUST? simply, has to do with trust. Many of the traditionally wealthy families (Inheritors and Self-made) continue to depend on their personal confidants such as their family chartered accountants or family lawyers for their estate planning needs because these individuals have their 71.4% implicit and enduring trust. ADVISORS ON ESTATE PLANNING Lawyers Financial Advisor / Banks Chartered Accountants Friends / Family Own research 28.6% Yes No Among the three categories, it is only the Professionals who admitted in greater numbers that they had consulted their financial advisors on 8.0% estate planning structures. But even among them, only 30 per cent said that they had created a private trust for their family. While among Inheritors and Self-made, only a small minority has discussed setting 15.1% up a trust with their financial advisors and an even smaller number has actually gone ahead and set up trusts. 17.2% Estate planning can be taken care of by either Wills and/or trust 27.1% structures. A Will is a legal declaration by which a person (the testator) 32.6% names one or more people to manage his/her estate (executor) and provides for the distribution of his property at his demise. On the other hand, trust involves transferring of one's estate to a Trustee for the “We have a lawyer who is as good as a family member since two benefit of certain intended beneficiaries. A trust provides for manage- generations. I do not think an estate planner would be needed as it is ment of the estate during one's lifetime and also provides for distribu- being already managed well,” one of our respondents said. tion and management of one's wealth post demise. 49 | T.O.P. India - Kotak Wealth & CRISIL Research
  • Among those who have set up trusts, an overwhelming majority also take care of an incapacity scenario as the settlor can also be a (more than 3/4th) of Inheritors, Self-made and Professionals have beneficiary of the trust. An irrevocable trust, on the other hand, set up revocable trusts. A revocable trust is one where the settlor or provides the added advantage of ring-fencing of assets, if structured the creator of the trust has the right to revoke the assets transferred appropriately. Private trusts can also be used to meet philanthropic into the trust. Such trusts are very flexible and help in ensuring smooth objectives. transition of assets without any delays, disruptions or disputes. It can ADVANTAGES OF ESTATE PLANNING 10.5% 25.9% 16.2% 23.7% 23.7% Consolidation of assets Taking care of dependent / minor beneficiaries Preventing disputes in the family Ease in succession Protection and preservation of assets The newer generation of ultra HNIs is certainly more amenable to professional estate planning, our survey indicates. Nearly 50 per cent of the respondents under 30, for instance, said that they had held preliminary discussions on estate planning. This is certainly an encouraging sign as it suggests a growing awareness about the need for estate planning among the wealthy in India. T.O.P. India - Kotak Wealth & CRISIL Research | 50
  • EXPERIENCE WITH ESTATE PLANNING Extremely satisfied Satisfied Not at all satisfied 42.9% 28.5% .5 28 28.6% Last year, there was a lot of public discussion and debate on the reintroduction of an inheritance tax in India. At a time when the government tax revenue is under strain, there is avid support for the idea of inheritance tax from a number of economists, politicians and other influential figures. Though when and whether this tax will be reintroduced remains anybody’s guess, these discussions have led to many families thinking seriously about trust structures. Though the concept of estate planning is in its nascent stages, it is quickly gaining importance in the minds of ultra HNIs largely because of the growing awareness of the subject and its various advantages and also because with changing times, there is a need to ensure protection and ring-fencing of assets to ensure that the interests of family members are protected in the future. Families are also more open to appointing professional estate planners as their experience and expertise on these matters will help their family take care of all their needs in the most efficient manner. 51 | T.O.P. India - Kotak Wealth & CRISIL Research