China is now leading house price growth across the globe’s prime property markets, according to new research from Knight Frank.
The firm’s latest Prime International Residential Index, which ranks luxury home value performance in 100 locations around the world, highlights China as the hottest market of 2016, with Shanghai leading growth, thanks to a 27.4 per Cent price increase. Beijing and Guangzhou are in a close second and third place, with 26.7 per cent and 26.6 per cent growth respectively.
Indeed, Australasia was the strongest performance region of the world, with prices up 11.4 per cent year-on-year – ahead of Asia, the second strongest region, where prices rose 5.1 per cent on average.
New Zealand, Canada and Australia all ranked well, while oil-dependent markets such as Moscow and Lagos brought up the rear in the league table.
The report highlights just how much the global landscape has shifted in the last year, as taxes and other law changes take effect. Last year’s front-runner, Vancouver, for example, performed well, but saw its sales impacted heavily by the introduction of a 15 per cent tax on foreign buyers in August 2016. Prime prices ended the year 15 per cent higher, but this was “notably lower than the 25 per cent increase recorded in 2015,” observes Kate Everett-Allen of Knight Frank.
London, meanwhile, slipped down the PIRI rankings, with prime prices declining by 6.3 per cent year-on-year. This was due to the 3 per cent hike in stamp duty for additional homes, introduced in April 2016, rather than because of the UK’s Brexit vote. In the long-term, though, the city’s appeal appears unchanged: Knight Frank reports an uptick in sales volumes and improved sentiment at the end of 2016, as the popular safe haven among wealthy investors readjusts to the new tax burden.
“The long-held safe haven narrative still has its place,” says Everett-Allen, “but with strong capital growth eluding the world’s top financial capitals, we expect secondary markets across Europe and the US to come under the spotlight.”
New York “had its challenges” in 2016, as the strong US dollar negated some overseas interest and the delivery of a large number of new luxury projects helped inflate supply. But while volumes slowed, prices proved resilient, and with President Trump expected to embark on a programme of fiscal stimulus, reduced regulation and infrastructure investment, there is potential for stronger growth in 2017.
“Over the coming months, all eyes will be on policymakers in China as they attempt to reign in prices in the largest cities,” predicts Knight Frank. “The wider mainstream market, where price growth of 30 per cent year-on-year is not uncommon, continues to overshadow the luxury sector. New cooling measures, including higher deposit rates and home purchase restrictions, have already been introduced in some cities in the hope of both slowing the rate of growth and deterring speculative demand.”
Some of China’s cities, meanwhile, are only ranking at the top of the chart due to their low starting point: Guangzhou, for example, now finds itself sitting alongside Shanghai in the rankings, having recorded 27 per cent annual price growth, but in real terms, prime prices are half those found in China’s financial capital. Seattle and Amsterdam are also rising from a low base, but in both cases this can be considered a price correction, following falls of 29 per cent and 18 per cent respectively, in the wake of the financial crisis.
Europe continues to send out mixed messages, accounting for half of the locations recording a fall in prices in 2016, although this is down from 65 per cent in 2015. Amsterdam, Gstaad, Munich, Berlin and Barcelona were Europe’s top performers, but second home markets such as Ibiza, Mallorca, the Western Algarve and Lake Como also rose up the rankings.
For investors seeking attractive margins, Knight Frank highlights locations where prices are rising from a low base, but where any risk is tempered by a level of transparency and good governance. Paris, Berlin, Madrid, Dublin, Chicago and Seattle are all singled out as top target markets for 2017.
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