Slowdown in Luxury Property Prices Cools Inflation for Chinese Super-rich

Hurun Report releases Luxury Consumer Price Index 2011

l   China’s wealthy face 7.73% rise in costs of luxury products and services, outstrips national inflation

l   Jet and yacht prices see greatest gains, surging 20.1% yoy, followed by cosmetics and accessories with 16.6% gain.

l   Luxury property prices slow to 14.4%, down from 56.4% last year as government measures kick in

l   Leading the charge of rising luxury prices is a bottle of 30-year-old vintage Moutai, a Chinese baijiu, which now costs RMB 20,580, up 60.8% yoy.

l   High demand for executive MBA programmes allows leading business school to hike prices 18.9% to RMB 630,000.

l   Currency changes played an important role in the price increases.  In the past year, the Swiss Franc appreciated 28.6% against the Yuan, the Euro 11.7% and the British Pound 8%. Both the US Dollar and HK Dollars fell 5% against the Yuan.

l   Luxury Consumer Price Index outstrips national CPI for fifth consecutive year

l   Golf club membership rise less than national inflation, up only 2.9% yoy.

l   Hurun Report estimates that RMB 110 million now required for ‘financial freedom’ in first-tier Chinese cities, and RMB 70 million in second- and third-tier cities.

(25 July 2011, Shanghai) Hurun Report, the leading authority on wealth inChinaand publisher of the annual China Rich List, released the Hurun Luxury Consumer Price Index today. The Luxury Consumer Price Index (LCPI) is an alternative index, measuring the change over one year in the prices paid by luxury consumers for a basket of 61 luxury goods and services. This is the fifth year Hurun Report has released the LCPI.

Hurun Report’s index shows thatChina’s wealthy are having to cope with a 7.73% rise in costs, 1.3% higher than the national Consumer Price Index (CPI), which is running at 6.4% in June yoy, but considerably slower than last year’s explosive 11.3% increase.

In the Hurun Report basket of goods and services, yachts and jets have seen the largest prices rises with 22.1%, followed by cosmetic and accessories with 16.6%, luxury property prices 14.4%, high end drinks and smokes 9.2% and education 7.4%.  Sectors that have grown slower than national inflation of 6.4% include watches and jewelry up 5.7%, luxury travel up 4.1%, private club memberships up 2.9% and luxury automobiles are up 1.5%. The only sector that ended up cheaper than last year was high end furniture, down 12.2% yoy.

Currency changes played an important role in the price increases.  In the year to 1 June 2011, the Swiss Franc appreciated 28.6% against the Yuan, the Euro 11.7% and the British Pound Sterling 8%. Both the US Dollar and HK Dollars fell 5% against the Yuan. Of the 61 products in the basket of goods and services, 38 are imported.

Rupert Hoogewerf, Chairman and Chief Researcher of Hurun Report, said, “Luxury consumer prices continued to rise in the last year, as wealth continued to be created inChina, triggering increased spending on luxury. With China now Number One in the world for almost all luxury brands: Number One largest market, or Number One fastest growing market, the annual change in luxury prices has an important effect on the profits of these brands.”

Table: Comparison of Luxury Consumer Price Index with national CPI over last five years

Inflation in luxury goods and services has risen 25.9% faster than the national CPI over the last five years.

Source: Hurun Report. Table above shows the annual changes in LCPI and CPI, aggregated from a base equaling 100 in 2006

Up and up

Yachts and jets rose fastest, at 20.1% yoy, significantly outstripping national inflation of 6.4%. The British Sunseeker yacht brand now sells its new 73-foot Manhattan yacht for RMB 31.4 million all in, up 24.6% compared with its old 70-foot model, partly due to the rise in the pound sterling and partly due to the increased appetite fromChina’s wealthy. The cost to rent a private jet inChinais up 15.6%. For example, a Beijing-Shanghai return trip on a Gulfstream G550, capable of seating 16 people, now costs RMB 276,500.

Government measures to control the surge in luxury property prices seem to have had an impact, with luxury property prices slowing this year to 14.4%, down from last year’s explosive 56.4%.  In Shanghai, for example, a 350sqm villa rose 17.7% yoy to RMB 35 million, significantly slower than its 70% rise last year.

Accessory and cosmetic prices shot up 16.6% year on year, led by fashion brand Chanel charging customers 61.6% more than last year for a particular bag.  Cosmetics also continued to defy national inflation, with Lancôme charging 10.3% more for a jar of its skin cream than last year.

Luxury alcohol prices continue to rise at 9.2% yoy, similar to the 9.1% jump seen last year.  A surge in demand for luxury baijiu led the way, with a 30-year-old bottle of vintage Moutai now costing 60.8% more than last year, retailing in department stores at RMB 20,580. China’s thirst for all things Bordeaux continued, with a case of six bottles of Château Lafite 1982 rising to RMB 445,186, a 29.3% price jump on last year, partly mitigated by the increase in the Euro.

Watches and Jewelry prices rose 5.7% yoy, slower than national inflation, driven primarily by a hike in the cost of its gold and diamond raw materials and currency increases. The price of a one kilo gold ingot rose to RMB 316,850 and a one carat diamond to RMB 97,526, representing increases of 19.6% and 9% respectively. Despite a 28% appreciation of the Swiss Franc to the RMB, luxury watch prices have remained stable.

Education fees continue to rise, this year up 7.4% compared with 5.3% last year. Executive education programmes led the way, with an EMBA at Cheung Kong Graduate School of Business, a leading business school inChina, now costing RMB 630,000, up 18.9%.

Luxury car price increases have fallen behind national inflation, up 1.5% yoy, compared with 3.1% last year. Rolls-Royce led the way with a 4.1% hike in the cost of a Phantom extended wheel base. Most of the other key luxury car brands managed to maintain their prices with the regular launch of updated models.

Luxury travel prices remained below national inflation levels at 4.1%.  Europe has become more expensive over the past year, with the Euro, British Pound and Swiss Franc all rising sharply against the RMB, whilst travel to the US and HK has become cheaper. Domestic hotel prices continue to rise, with a night in the Pudong Shangri-la Hotel rising 12.9% this year.

Luxury furniture prices have dropped 12.2% yoy, mainly due to a fall in the value of red wood, a dark wood popular with luxury Chinese consumers.

960,000 Chinese millionaires and counting

There are now 960,000 individuals in China with personal wealth of RMB 10 million (equivalent to US$1.5 million, Euro 1.1 million, GBP 950,000) and 60,000 individuals with more than RMB 100 million, according to the GroupM Knowledge - Hurun Wealth Report 2011 released in April this year. They are 39 and 42 years old respectively, making them fifteen years younger than their Western peers, and growing much faster.

The Chinese millionaire has 3.3 cars and 3.7 watches and takes an average of 15 days holiday a year.

The Chinese millionaire is currently on a quest to turn their ‘new money’ into ‘old money’.

The most popular collectables are watches, red wine and Chinese classical art.

Hurun Luxury Consumer Price Index 2011

Source: Hurun Report 2011

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Established as a research unit in 1999 by British accountant Rupert Hoogewerf, Hurun Report Inc. has grown into a leading research house, media and lifestyle investments business based in Shanghai, China, best-known for its rankings of the richest people in China, India and the rest of the world.

Hurun Report Inc. has four divisions: Hurun Research Institute; Hurun Media; Hurun Conferences and Training, an active events division targeting entrepreneurs and high net worth individuals; and Hurun Lifestyle and Investments, with investments in education, interior design, horses, bespoke tailoring, media and retail.

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