Costs of living it up
The price of the luxe lifestyle outpaces inflation
The question of how much something costs concerns us all. Beyond the conventional supply and demand relationship, understanding the intrinsic value of goods or a service also influences and drives consumer choices. With this in mind, it is striking that for Asia's high net worth consumers, a representative basket of their purchases inflated by a staggering 8.8 per cent for the year to April 2012.
The Bank Julius Baer Lifestyle Index tracks a portfolio of 20 luxury "necessities" across the region in four key cities: Mumbai, Shanghai, Singapore and Hong Kong. Ranging from a bottle of Lafite Rothschild, lawyer's fees, golf club membership and a Steinway grand piano, to business-class travel, a 4,000 sq ft residential property, a ladies Chanel quilted handbag and the cost of a wedding banquet, Asia's wealthiest consumers saw the cost of their luxurious lifestyles rise despite a slowing global economy and the persistent crisis in Europe. In 2011, the same index rose 11.7 per cent in US dollar terms, hence an adjustment took place, but the updated rise was still significantly ahead of consumer price index readings (CPI) across Asia.
Such inflation begs the question "what is value?" beyond simple dollar cost. The index sheds light on how consumers perceive that value. For example, bottles of Lafite Rothschild have commanded considerable price increases across Asia in recent years. Yet simultaneously, consumers are rapidly becoming sophisticated wine investors, recognising great value in less famous vineyards, and casting a wider net to Italy along with those from the New World.
Hence, the perception of value resides in more than branding and prestige alone. Intrinsic quality also shines through and connoisseurs will, given time, rise to meet - and appreciate - it. But for now, Lafite still tips the pile.
Property illustrates another price and value issue. The old adage that property is all about "location, location, location" is not the whole story. Given the nature of super-high-end property developments, the identity of the lead buyers, often referred to as "landmark tenants", appears to matter a great deal, says Knight Frank property expert Alana Sorokin. In addition, buyers want to be near their family and friends, and therefore wealthy people may consider investing as a group. In which case, price matters less than the value of human and social factors.
Stefan Hofer is an emerging market strategist, Bank Julius Baer