Sars losing out on rich pickings?
The real number of South Africa's super rich may be far higher than present estimates.
The South African Revenue Service (Sars) has something to celebrate, according to a report by wealth consultancy New World Wealth that indicates that the number of high-net-worth individuals in South Africa is a lot higher than estimated by the tax service.
This week Sars spokesperson Adrian Lackay said its definition for high net individuals are those whose gross income exceeds or is equal to R7-million and/or whose gross wealth exceeds or is equal to R75-million. Sars presently estimates there are about 2 942 individuals who fit into this category.
In a 2012 report that looked at earnings in rands, Sars said that there were at least 20 000 people who could afford to invest at least R1-million on an annual basis.
But the New World Wealth report, which has a database of more than 600 of South Africa's richest people and calculates wealth in dollars, said there were 48 100 high-net-worth individuals in South Africa. These individuals had net assets worth between $1-million and $30-million.
It also said its research had shown that there were an additional 599 ultra-high-net-worth individuals – those with net assets of $30-million or more – including six dollar billionaires such as Aspen Pharmacare group chief executive Stephen Saad and Desmond Sacco, the chairperson of chrome and iron-ore miner Assore.
New World Wealth, which is based in the United Kingdom and South Africa, analyses wealth globally for private banks, fund managers and other professional services. Data is drawn from all major companies, public and private, as well as residential and commercial property sales, and the sales and auctions of luxury goods, according to senior analyst Andrew Amoils.
'Third party data'
Filing compliance by high-net-worth individuals was high at 82.20%, Sars said, but it had recovered R13-million through audits, and R9.6-million though audits of 13 trusts. Lackay said Sars was constantly reviewing "third party data such as property, trusts, motor vehicles, and financials" and was "constantly working to tackle non-compliance" and to build its database.
In findings very similar to Sars's, however, New World Wealth found that the largest asset class in which the very wealthy in South Africa invested in was equities, which made up 28% of this elite group's assets in 2013. This was followed by real estate (excluding primary residences) at 20%, business interests at 16%, cash at 15%, with 6.6% going to an “alternatives” category.
It found that 45 000 South Africans accounted for 35% of the country's total wealth contributed by individuals, at $570-billion, outperforming the worldwide average for high-net-worth individuals, which is 34%. Amoils said that in Russia the very wealthy account for 68% of the country's total wealth contributed by individuals, and in the United States the figure is 34%.
"The reason New World Wealth's figures are higher than those of Sars is probably because Sars is basing its figures on people who are earning, but there are a lot of millionaires who are not working, some of whom are retired," said Amoils.
When viewing these figures, it is important to keep in mind, however, that the average South African was worth $11 300, while the global per capita wealth average was $27 600. The consultancy's studies showed that in Nigeria wealth per capita was $1 300, and in Ethiopia $260.
Amoils said primary residences were not included in the study because it could influence the research. For example, the increase in house prices experienced between 2000 and 2007, driven by interest from foreign buyers in Cape Town, resulted in some prices moving into the million-rand bracket.
Cash and fixed-income products showed the strongest growth over the review period of 2007 to 2013, driven by a move to safer assets after the 2008 global financial crisis.
Hedge funds, real estate investment trusts, private equity, structured products and derivatives made up 3.7% of the wealthy's assets in 2013, compared with 4.7% in 2007.
This was attributed to the poor performance of local and international hedge funds, with the world hedge fund index declining by 14% over the review period.
The research found that 22% of South Africa's high-net-worth individuals had homes abroad in 2013, but many of these had returned home.
South Africa's very wealthy decreased their property holdings from 26% of their total assets in 2007 to 20% in 2013.
The breakdown of data involving 600 high-net-worth individuals showed that Johannesburg was home to the majority at 48%, followed by Cape Town at 18%, Durban at 6%, and Pretoria at 5%.
Sandhurst had the highest proportion of high-net-worth individuals at 38, followed by Bryanston and Hyde Park. Camps Bay had the highest proportion of very wealthy in Cape Town with 14, followed by Clifton with 11. In the Durban area, Umhlanga was home to 11 and there were nine in La Lucia.
According to the report, financial services was the main industry from which the wealthy were acquiring their money. The fastest-growing sectors were telecoms, insurance, healthcare, banking, fast-moving consumer goods, retail, and transport and logistics.
The wealthy were also spending on luxury goods. The report said almost 1% of the total assets of dollar millionaires, at $1.3-billion, was invested in collectibles last year.