When it comes to luxury goods, RoE doesn't stand for return on equity, but rather, return on ego. Often, luxury items are not bought for their investment value but for the return they give in the beauty stakes, their show-off appeal or their ability to offer an easier lifestyle. Those that increase in value are usually rare or in demand. With booming equity and property markets over the past few years, more and more people have accumulated wealth and they're looking to vanity assets to spend it. The FM went in search of assets that offer the best RoE.
Jetsetters
The market for planes and helicopters is very cyclical but booming at the moment. National Airways Group CE Martin Banner says manufacturers of long-range jets, such as the Gulf Stream, have order backlogs of three to four years.
Some models of helicopters have increased in value too. The Bell 407, Banner says, is the best-selling single engine helicopter in SA and new orders can take up to four years to deliver. He says a Bell 407 bought five years ago costing US$1,5m would now sell for $2,5m. "Generally, aircraft retain their value. They depreciate over a three- to four-year period and then stabilise."
But the costs associated with running and financing an aircraft are often huge and detract from the investment value.
Diamonds and pearls
Jewellery has always been a vanity asset as it is usually considered to have "lasting value" rather than a real return. "If you buy yourself a diamond ring and then give it to your son for his wife's engagement ring, it would have been a good buy," says Ronnie Anderson, owner of Veronic a Anderson Jewellery. "You probably wouldn't be able to sell it for more than its purchase price, but to buy a new one would cost far more."
Eva Miklas of Stephan Welz/Sotheby's says the investment value depends on the type of jewellery. "If you buy an antique piece or a good-quality diamond, the value would go up." She cites the example of a 2,3-carat light greyish blue diamond, sold on a recent sale for R850 000, which was bought for virtually nothing about 40 years ago.
But most jewellery, says Anderson, is a status symbol, makes you feel good and has that facelift value.
Buying the R26,6m Cartier Asia necklace (see photo above) is a bit more than that and clearly only for the exceptional few. Miklas believes the piece will increase in value, mostly because of the Cartier name and the reputation the jeweller has for using top-quality gems.
Picture this
Art is one of the few luxury items whose value has grown over the past few years. Art has become a status symbol globally and something of a certificate of sophistication.
SA art has followed the global trend. A Gerard Sekoto, for example, was bought for R220 000 at auction in 2005 and sold again in 2006 for R720 000. Other SA artists fetching outrageous, and some think unsustainable, prices include Irma Stern, Pierneef and Maggie Laubser. The trick now is to find similar artists who have yet to be discovered.
Though the right art has been a good investment over the past few years, there are hidden costs which have to be taken into account. For example, insuring the Sekoto at its most recent valuation would cost around R2 000/year, according to Massie. He says the rate could fluctuate depending on the loss record, security and the curatorship of the collector.
Island style
With personal jets a reality for the privileged few, owning an island is becoming de rigueur. Whether it's seclusion you're craving or the ability to entertain friends or business colleagues in a personal hideaway in paradise, islands can also offer good financial returns.
"On the whole, islands appreciate faster than virtually any kind of other property," says director of operations for Toronto-based island broker Private Islands Inc, Alexis Pappas. "It's a growth area of luxury real estate, in part due to technological advances such as solar power and water filtration, that make developments much less cost- intensive."
In areas such as the Bahamas, islands that sold for less than US$1m five years ago are now on the market for three to four times that.
"One of the main things to consider is whether the time taken to get to your island is worth the amount you are able to spend on it," says Pappas. Other factors to think about are whether it's permissible for foreigners to own freehold property or whether only leasehold islands are legal, as in Asia and Oceania.
In Africa, there are relatively few islands for sale. "African islands are very beautiful and quite sought-after, particularly on the western coast," says Pappas. "But most are highly protected and tend to be used for eco-resorts."
Classic cars
SA is home to many of the world's most well-preserved classic cars in a market that is booming. "Generally, cars from the 60s and 70s earn better returns than vintage cars from the turn of the century," says Gavin Spiller of classiccarsource.co.za. For example, a Ford Mustang Shelby would have sold for $2 000 in 1966, but is worth R1m today.
"These cars don't do a lot of mileage, so once the restoration is completed, there aren't too many maintenance costs involved," he says. The trick to investing wisely is ensuring that the paperwork is in order, that there are parts available and that you're paying the correct amount for the condition it's in.
Good breeding
For centuries equestrian activities have been popular with the upper classes and the returns on race horses can be phenomenal. "Race horses are a high-risk, high-reward investment," says Jehan Malherbe, director of Form Bloo dstock, a company that advises horse buyers.
A talented yearling with good pedigree, for example, can fetch about R270 000. And depending on how it performs on the track, it could be sold for many times that just a few years down the line. For example, Iridescence, a race-winning filly, was bought for R180 000 in 2003 and sold for more than $1m this year.
Apart from the initial capital layout, you can expect to pay about R4 000/ month for stabling and training. "But less than 4% of all horses bred will win a feature race," adds Malherbe. International demand for SA-bred horses is increasing as they are considered good value. Yearlings thus can't be bought for the bargain prices of a few years ago.
Ranking the Analysts 2009
