Is the Luxury Watch Bubble Bursting?

Is the Luxury Watch Bubble Bursting?
Luxury Watch Bubble. Image source: Unsplash

Now is not the time to sell, rather use your luxury watch to unlock wealth.

The trade in second-hand luxury accessories, including watches and handbags in recent years has seen a boom but analysts predict that the bubble is bursting with investment in luxury watches and South Africa is following Europe and America’s trends.

 

The right watch brands as an asset class are a good investment and have shown strong growth in the past several years despite high inflation and other economic pressures. According to the latest market forecast, while this segment is expected to grow annually by 3.44% over the next five years, analysts have indicated that when it comes to investment in watches, the bubble has started to burst with prices seeing a decline.

“Second hand luxury watches, particularly men’s watches like Rolex, Patek Philippe and Audemars Piguet, have gained the most value over the past few years,” says Charles Meyerowitz, CEO at Lamna. “Now is not the time to sell so it comes as no surprise that we are seeing an increase in these items being used to access quick, discreet finance.”

The global second-hand market is said to have a value of USD$22-billion with Rolex being one of the biggest brands and the most sought-after. This, he adds, indicates just how appealing luxury watches and jewellery are to South African collectors and luxury enthusiasts.

“We attribute the surge in the pre-owned luxury goods sector due to demand from China which has now come under pressure,” he explains. “At Lamna we’re seeing a steady growth of around 20 percent annually, specifically with the use of luxury watches to secure fast finance.”

Most notably, Meyerowitz says that millions of rands in luxury watches are loaned annually through Lamna.

“From Rolex, Cartier and Patek Philippe watches to Hermes and Louis Vuitton handbags or fine art, even the posh are turning to asset finance to access their money,” he says. “Lamna has started the year some 30 percent up on the previous year.”

According to the latest report by Luxity, an online reseller of pre-owned luxury goods in South Africa, the highest return for a watch brand is Rolex, returning 87,5 percent on average when comparing resale price to retail.

Using a luxury watch to secure a loan is becoming an increasingly common way to access capital says Meyerowitz. “The boom in asset finance to unlock wealth quickly against assets like watches is fast becoming normalised as a viable alternative to finance,” he adds.

He notes that the basic principles of asset-backed loans haven’t changed much. “You provide an asset in return for finance and once the loan is paid up you receive the item back,” he explains. “New-age asset finance is more sophisticated and secure which is why more clients are using their luxury items like watches and handbags to unlock finance against these lazy assets.”

“It’s the perfect and most responsible solution to get access to money when liquidity challenges present themselves,” he explains. “The average loan at Lamna on a luxury watch is in excess of R120,000 placing customers firmly in a high-net-worth bracket compared to an average unsecured loan.”

He points out that almost 90 percent of Lamna’s clients are in a high LSM bracket and is slightly weighted to a male skew with the majority in the 20-60 age bracket. “While watches and jewellery typically make up around 5 percent of loans, Lamna does get more unusual items like art, handbags and prestige vehicles,” he says. “Leveraging a luxury item as a short-term loan option is a great way to manage a temporary liquidity challenge. Our clients are generally quite attached to their assets which means that almost 98 percent of our clients return to redeem their items.”

“Loans on watches are typically taken for up to 3 months, and many are repaid within the first 1 to 2 months,” he adds. “There are no penalties for early settlement providing a responsible way to bridge the gap.”

He says that one of the biggest benefits of using a watch to access finance is the speed at which funds are released. “Typically funds against loans on luxury items are released on the same day and you receive around 60 percent of the retail value,” he adds.

According to a recent report by Morgan Stanley, Rolex is expected to remain unchallenged for years to come with greater sales than that of Cartier, Omega, Audemars Piguet, Patek Philippe and Richard Mille combined. The report released in February estimates that Rolex has increased its market share by over 30 percent with sales cresting at USD$10-billion.

In addition, Meyerowitz says that the company also offers bridging finance and vehicle finance against assets, contracts, and court cases.

“Realising the value of a lazy asset like a watch through an asset backed loan is a quick and easy way to raise capital without the hassle of fees, auctions or dealing with untrustworthy members of the public should you choose to sell,” he says. Unlocking your money in your assets might just be the perfect short-term liquidity solution because you will always have access to your asset without selling it.”

For more information visit: https://www.lamna.co.za/