We are often asked what options we should consider as our "next move" in the process of asset building with a focus on real estate investment. In particular, we feel that interest in diversification for the purpose of hedging against inflation and diversifying one's assets is growing.
In this article, we will discuss the asset value and investment strategy of "luxury watches, " which are attracting attention among high-net-worth individuals. For those of you who own real assets in the form of real estate, Fine Watchmaking can be an attractive complement to your portfolio. The presentation will delve deeply into why Fine Watchmaking works as an asset, from the economic and historical factors behind it to specific tax strategies and even risk management, from an expert's perspective.
Why Luxury Watches are the Asset Protection Instrument of Choice
The move by high-net-worth individuals to add luxury watches to their asset portfolios is based on a rational investment decision that goes beyond mere taste and preference. With characteristics that differ from the stability and profitability of real estate, luxury watches are being reevaluated as an effective means of asset protection, especially in an era of increasing economic uncertainty.
The reasons for this can be summarized in four main elements
1. rarity and brand value
The production of globally acclaimed luxury watch brands, especially the "world's three great timepieces," Patek Philippe, Audemars Piguet, and Vacheron Constantin, is strictly limited. The manufacturing process, which relies on the handiwork of craftsmen, does not allow for mass production, and as a result, the supply-demand balance is always in a state of excess. This scarcity is the basis for the long-term value of a watch.
2. universal standard of value
The value of a Fine Watch is universally recognized across countries and cultures. This is similar to that of gold, and is a major advantage in hedging against the risk of fluctuations in the economic conditions and currency values of a particular country. In particular, its resistance to loss of value in the event of heightened geopolitical risk is extremely important for asset protection. 3.
3. liquidity and liquidity
Compared to real estate, which takes time to sell, a specialized secondary market has been established for luxury timepieces, enabling them to be liquidated in a relatively short period of time. Through a worldwide network of collectors and dealers, transactions can be concluded quickly. This high level of liquidity serves as an insurance policy should the need arise to secure funds in an emergency . 4.
4. physical portability
A luxury watch is, as the name implies, a "wearable and transportable" asset. This is a unique advantage that real estate and works of art do not have. Historically, there are many anecdotes of wealthy Europeans who, when fleeing wars and revolutions, carried their entire wealth in jewelry and watches. In terms of contingency planning, this portability is highly valued as a last resort for asset protection.
The combined effect of these factors is that luxury watches are not merely consumer goods, but are "real assets" that are resistant to inflation and have a high cash value.
The World's Three Greatest Watches and the Rise in Asset Values
Among luxury watches, the "world's three major watch brands " have seen a particularly marked increase in asset values. The following is an explanation of why these brands are treated differently and the recent market trends.
The world's three major watch brands are as follows
- Patek Philippe
- Audemars Piguet
- Vacheron Constantin
What these brands have in common is their historical background of uninterrupted watchmaking since their inception and their pursuit of the highest technical and artistic standards. Especially after the pandemic of the new coronavirus infection (COVID-19), the value of these watches skyrocketed, riding the wave of asset inflation caused by global monetary easing.
This was the result of a concentration of funds from wealthy individuals around the world amidst extremely limited supply. Today, although there has been some adjustment from the peak, the prices are still stable at high levels, indicating the high long-term value of these assets.
Such price hikes cannot be explained by mere speculative movements. It is proof that the brand's trust, track record, and uncompromising commitment to quality have been built up over the years and continue to be appreciated over time.
Secondary Market Status
The existence of a secondary market is essential to the value of a Fine Watch. Many popular models, which are extremely difficult to purchase through authorized dealers, are actively traded on the secondary market.
The secondary market is not simply a market for second-hand watches. Rather, it is a mirror of a watch's true market value, the price of which fluctuates daily, just like the stock market. Let's take a closer look at its role and current status.
The Role of the Secondary Market
1. price discovery function
When the list price at an authorized retailer deviates from the prevailing market price, the secondary market forms a "market price" that reflects the supply and demand situation. It is not unusual for a watch to be traded at several times its list price, such as the Patek Philippe "Nautilus" mentioned above.
2. liquidity
Having a market where you can sell when you want to sell and buy when you want to buy is essential to ensure the value of an asset. Liquidity is supported by specialized dealers and online platforms around the world.
3. supply of rare models
Vintage models that are no longer in production, or rare models that are produced in limited editions, are only available on the secondary market. For collectors, they are a veritable treasure trove.
Recent Trends and Points to Note
In recent years, the development of online platforms has made it easier for individuals to access the secondary market. However, behind the ease of access, there are some points to be aware of.
| Advantages | Disadvantages and points to note |
|---|---|
| Access to global markets Access to worldwide inventory through specialized platforms |
Risk of counterfeit products Sophisticated counterfeit products are available, and authenticity checks are essential |
| Transparent price information Easy access to historical transaction data and current market prices |
Price fluctuation risk Long-term perspective is necessary, not just short-term price fluctuations |
| Wide variety of options Wide selection of current and vintage models to choose from |
Selection of a reliable dealer It is important to do business with a reliable partner after thoroughly researching their track record and reputation. |
The more expensive the transaction, the more important it is to select a reliable partner. Dealers with many years of experience and expertise can provide not only authenticity appraisals, but also suggestions on the best model for your individual asset situation and advice on future exit strategies.
INA&Associates Inc. has a network of experts not only in real estate but also in such real assets.
Advantages as a portable asset
Among the many advantages of a luxury watch, the most important feature that sets it apart from other real assets is portability. While this characteristic may not be recognized in times of peace, it can be the ultimate means of protecting assets in times of social instability.
Value as a "Wearable Safe
Real estate is literally an "immovable asset," and its value is fixed in the land or building. On the other hand, a luxury watch can be worth millions or even tens of millions of yen, yet can be worn on the wrist or slipped into a pocket and moved across borders. It is no exaggeration to say that this is truly a "wearable safe.
Throughout history, there are countless examples of how this portability has protected the assets of the wealthy. For example, during World War II in Europe, many of the wealthy people who fled persecution in the region were said to have converted their entire wealth into diamonds and luxury watches in order to escape to new lands. For them, watches were not mere ornaments, but lifelines to the future of their families.
Significance of Portability in Modern Times
In today's Japan, there may be no need to envision extreme situations such as wartime. However, there is no need to assume the possibility of unforeseen events such as a major natural disaster, a financial system crash, or a sudden move abroad. In such an event, having assets on hand that can be taken out and converted to cash instantly will give you a sense of emotional security.
| Types of Assets | Portability | Convertibility (domestic) | Redemption (foreign) |
|---|---|---|---|
| Real estate | Not available | Low | Very low |
| Gold (bullion) | Medium (with weight and volume) | High | High (with legal restrictions) |
| Works of art | Low (with risk of damage) | Medium | Medium |
| Fine watches | High (can be worn and moved) | High | Very high |
As shown above, the portability and global convertibility of luxury watches are outstanding compared to other assets. In particular, the fact that its value is instantly recognized abroad and can be converted into local currency is a significant advantage that real estate does not have.
Of course, this is an extreme scenario, and it goes without saying that in normal times, the stable cash flow and tax savings that real estate provides are more important. However, from the viewpoint of risk diversification, it is of great strategic significance to include "portable assets" in the construction of an asset portfolio.
Conclusion
In this article, we have explained the multifaceted value of "luxury watches " as part of the asset strategy of high-net-worth individuals. In conclusion, we would like to reiterate the main points of this article.
Diverse asset characteristics: Fine Watchmaking is a unique real asset that combines rarity, universal value, liquidity, and portability like no other asset.
Increased asset value: Top brand models, especially those from the world's three major watch brands, tend to appreciate significantly during periods of asset inflation, making them suitable for long-term asset preservation.
Strategic use: A proper understanding of the secondary market and working with a trusted partner can make it a highly liquid investment. Its portability can also be the ultimate risk hedge against contingencies.
For those of you with a stable foundation in real estate, luxury watches are a viable option to bolster your portfolio and increase the liquidity and internationality of your assets. At the same time, however, it is an area in which expertise is essential, with its risks of counterfeiting, price fluctuations, and complex taxation.
At the Landlord and Tenant Association (INA Network), which we at INA & Associates, Inc. preside over, we not only exchange information on real estate, but also discuss such diverse asset strategies with experts in various fields. We will answer all your questions as long as you follow our rules.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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