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Knight Frank analyses prime price movements in decade since crash

Fresh research examining the movement of prime residential prices in the world’s top cities since the start of the financial crisis, which took hold 10 years ago, has been unveiled by Knight Frank.

The data, taken from Knight Frank’s recently launched Wealth Report and its Prime International Residential Index (PIRI), shows how house prices fared pre, during and post the global financial crisis.

In 2007, when no-one was fully aware of what was to come, prime prices in most of the world’s major cities were increasing fast, with London, Monaco and Hong Kong all witnessing annual growth of more than 25%. By 2008, however, prices in most global markets tumbled, with Europe and the US leading the charge and a number of key Asian markets also badly impacted.

In 2009, some prime property markets witnessed a revival as they came to be seen as ‘safe havens’ for investment as the sheer scale and damage of the Lehman Brother’s collapse became apparent. London, New York and Miami benefitted most from this renewed confidence in high-end property, with a dramatic drop in interest rates, volatile financial markets and new stimulus in the form of QE (quantitative easing) strengthening the appeal of property as an asset class.

In addition, shifts in currency influenced the direction and volume of capital movements, with the weak pound sparking greater interest in the UK from overseas buyers in Asia, the US and Russia.

The start of a new decade saw the ‘safe haven’ era continue, while also coinciding with the Asian economic boom that took hold in 2010. With Asian economies buoyant, wealth surged and currencies strengthened. As a result, a ‘wall of capital’ sought a home, which in turn boosted the domestic property markets of Shanghai, Beijing and Hong Kong. Asian demand also shifted to overseas markets such as Vancouver, London, New York and Sydney.

In 2011, the fallout from the global financial crisis continued, with European markets (London excepted) dominating the bottom of the Knight Frank rankings while emerging markets such as Moscow, Bali, Jakarta, Nairobi and Beijing came out on top.

By the next year, European markets started to show signs of recovery two years after worries over the continent’s heavily indebted nations (Spain, Greece, Ireland, Portugal) reached its peak. Investors from southern Europe started to redirect capital to the more robust economies in the north, especially Germany, while Miami witnessed a big rise in the number of Latin American buyers eager to hold a USD asset in a safe and transparent market abroad.

“The next phase marked the introduction of cooling measures, with the aim of curbing price inflation using macro prudential measures,” Kate Everett-Allen, partner and head of international residential research at Knight Frank, said.

“Apart from a handful of European markets - where the focus was on attracting not deterring foreign investment in the form of Golden Visas and investment incentives – policymakers in most prime markets focused on controlling or at least tracking capital flows into and out of their property markets. From Australia to Canada and from London to Hong Kong, higher stamp duties, foreign buyer taxes or moves to track Limited Liability Company (LLC) purchases, as seen in New York and Miami, grew in number.”

This meant that while Asia and Australasia continued to boom in 2013, with Jakarta, Auckland, Bali and Christchurch topping the rankings, Europe was trailing badly behind. In 2013, some 80% of the markets that recorded a fall in prices were European, although residential markets hit hardest by the global financial crisis – Dublin, Madrid and Dubai – did start to see prime price growth strengthen.

Policymakers in Ireland reacted with local property taxes while in Dubai transfer costs were doubled to slow the pace of growth and limit speculative investment.

In 2014, Asian markets started to slip back down the rankings as cooling measures were introduced, while the US markets performed strongly, in particular in New York and Aspen. A year later, QE stimulus continued to shore up property markets in the UK, Europe and the US, while a government clampdown in China on bank lending pushed capital away from property towards the stock market.

By 2016, Chinese cities took the top three PIRI rankings, while measures to control price growth, heighten transparency and increase tax takes saw price growth moderate everywhere from Sydney to London. In 2017, following a decade of weak growth, Europe finally recovered, occupying four of the top 10 PIRI rankings. In spite of an increase in oil prices in the second half of last year, residential markets dependent on oil remained firmly rooted to the bottom of the rankings.

This year, meanwhile, has seen a new phase entered of higher interest rates and the removal of stimulus, with price growth expected to continue to be strongly linked to domestic economic performance and wealth creation. Buyers, however, are being warned to monitor markets carefully for further policy interventions, which look set to rise in the months and years ahead.

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