Based on a new report by London-based real estate consultancy firm Knight Frank, prime properties in the world's global cities were considered 'safe haven' investments by savvy minded investors for the past three years. Against a backdrop of sovereign debt concerns and geo-political uncertainty wealthy investors sought the stability of luxury property in key cities such as London, Moscow and Hong Kong.
Now new signs are emerging that luxury property prices around the world are collectively softening for the first time since the global recession hit in 2008/09. Fears concerning unresolved sovereign debt issues both in the eurozone and US look to be having an impact on buyer confidence. Although the credit crunch and the resulting lending restrictions had a nominal effect on the prime market in 2008/09, issues of affordability have arisen, even among wealthy purchasers and a more cautionary climate is emerging.
Key 3Q International Price Results
- Prime property prices rose on average by 4.3% in the year to September 2011 across all 21 global cities monitored by the index; this represents the lowest annual growth recorded in two years.
- Asian cities are no longer performing as a homogenous unit, prime property prices rose by 15.1% in Jakarta but fell by 17.9% in Mumbai during the last 12 months.
- St Petersburg registered the largest fall in the third quarter, with luxury house prices declining by 11.6% in the 12 months to September.
- Prime property prices increased in 15 of the 21 cities monitored by the index over the last 12 months but only eight cities saw prices rise in the last three months.
- On a regional basis, Europe outperformed Asia, with prime property prices rising on average by 6.7% annually compared to 2.0% respectively.
Despite the current economic gloom, it is important to assess the long-term view and consider the extent to which prime property not only recovered faster from the 2008/09 economic downturn but has recorded some phenomenal price rises in the interim.
Prime property prices in London and New York now stand at 37.2% and 25.3% respectively above their recessional lows. But it is Asia that makes the headlines; luxury homes in Hong Kong are now 71.7% higher than at their low point in Q4 2008 while Shanghai and Mumbai have seen growth of 115% and 220% respectively from their markets' trough to peak.
The cooling of the Asian cities' prime markets is a key contributory factor to the index's quarterly decline. The near-uniformity of Asian house price growth witnessed over the last two years is now less evident as the pace and effectiveness of government deflationary measures starts to have a varying impact from city to city.
Frank Knight's view is that the prime market will continue to be less exposed to the risks in the global economy than most mainstream housing markets. Luxury homes in prime global cities will, we believe, retain their safe haven reputation, but they will attract fewer speculative investors seeking a short-term gain.