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A performance snapshot of key luxury property markets

Property Markets / Outlook

May 01 2018

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by Kate Everett Allen

 

Distilling the global market for luxury homes into one index isn’t easy, but Knight Frank’s Prime International Residential Index (PIRI), which I compile, brings together the performance of 100 of the world’s most popular or important ski, sun and city locations.

Many of the areas featured in the PIRI 100 are secondhome hotspots, while others are leading urban centres. In each market we look at the performance of the homes sitting on the top rungs of the housing ladder where international buyers tend to be more prevalent.

But enough of the research chat, what you really want to know is which markets are hot, and which are feeling a little chilly. Well, let’s look at Europe first. For the past decade the prime residential market there has been struggling compared with other parts of the world. Economic uncertainty has meant prices have been falling or stagnating in many of the locations we track in PIRI.

Last year, however, things started to pick up as the outlook became more optimistic. Amsterdam (+15%), Frankfurt(+13%), Paris (+12%), Madrid (+11%) and Munich (+10%) all saw double-digit growth, while the Western Algarve in Portugal and Italy’s Ligurian coast were the top second-home performers with prices rising 7%.

Not everywhere across the continent is doing quite so well though. Purchase tax increases and, to a lesser extent, Brexit, continued to hold back London’s prime market, which lost almost 1% in value, although this was considerably less painful for homeowners than the 6% fall seen in 2016.

It was second-home locations that bucked the upwards trend most obviously. With a price slide of 10.5%, Umbria in Italy was one of the PIRI 100’s biggest fallers last year; the sun also didn’t shine on St Tropez – down 5%.

And the rest of the world? As ever, it’s a mixed picture. Heading right to the top of the index we find Guangzhou with staggering growth of over 27%. What’s even more remarkable is that mainland China’s third largest city had already seen a similar level of growth in 2016 when it occupied the third spot in the PIRI 100, behind Shanghai and Beijing.

 

Above: Vernazza on the Ligurian coast

Measures by the Chinese government to take some heat out of the country’s burgeoning property markets saw growth in Shanghai and Beijing fall to “just” 9% and 7%. But Guangzhou’s relative affordability – house prices per square metre are about half those in Shanghai – meant it powered on regardless.

Elsewhere in Asia, a limited supply of quality homes to buy – coupled with more positive economic signals – pushed up prices strongly in Seoul (+13%), Hong Kong (+7%) and Singapore (+6%). In India, however, monetary and policy interventions have proved challenging to prime residential markets, although Mumbai still ended the year in the black – up by almost 1%.

Australasia’s main cities have been nudging double-digit territory – prices in Sydney, again driven by a lack of supply, rose by almost 11%, closely followed by Melbourne on 10%. In New Zealand, values in Auckland were up 6.5%.

The one thing that the PIRI 100 consistently highlights is that while we can see broad trends emerging and the performance of close-by locations can sometimes move in tandem – such as Europe’s resurgence this year – it is impossible to generalise about the performance of property markets within a country, let alone a continent.

Take South Africa, for example. Despite the drought, Cape Town’s most sought-after suburbs took second place in the PIRI 100 with an annual growth of 20%, while Johannesburg – the country’s business hub – saw prices fall fractionally.

And if we head north to the west of Africa, we find Lagos in Nigeria languishing at the bottom of PIRI with a drop of 25% – a full 52 percentage points behind Guangzhou.

North America is another case in point. The US ski resort of Aspen took third place in PIRI this year with a price jump of 19%, while average values in New York rose by a less spectacular 5%. Further north, a tightening of capital controls in China and new property taxes pegged back growth in Vancouver and Toronto from around 15% in 2016 to 4% and 9% respectively last year.

Having tracked these markets for a while, the main reason for these disparities is clear: there are so many intertwined factors affecting property prices. While in the past they would have been largely economic – once upon a time, house prices in the UK generally lagged the stock market by about seven months – government policies now play much more of a role, and the increasing mobility of wealth means money can be switched much more easily from one part of the world to another.

Looking at all the geopolitical issues facing the world in 2018, I expect the next instalment of the PIRI 100 to be equally, if not more, disparate.

 

SOURCE: Knight Frank UK

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