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REAL ESTATE

Luxe properties in demand

Knight Frank’s data offers insight into luxury residential price performance globally and underlines the extent to which Singapore’s position in the global rankings has shifted

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TAKING A HIT: Luxury prices in Singapore reached their low in the second quarter of 2015 after lending rules and the Additional Buyer’s Stamp Duty were ramped up.

THE Wealth Report, published each year by Knight Frank’s global research teams, is arguably the global authority on luxury residential price movements. Established in 2007, our Prime International Residential Index (PIRI), has tracked the highs and lows over the past decade of one hundred of the world’s most desirable residential markets.

Prime in a decade – How did we get here?

At the end of 2007, prime prices in most of the world’s top tier cities were rising fast. London, Hong Kong and Singapore were all witnessing annual growth in excess of 25 per cent.

The period between 2006/2007 and the beginning of the recovery in early 2009 saw prices tumble in most global markets, not only in the US and Europe, but also across several key Asian markets.

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Even prior to Lehman’s collapse on Sept 15, 2008, prime markets were registering slower growth as lending concerns peaked. However, it was the size of the crisis revealed by the collapse of Lehman Brothers in September 2008 which hastened the revival in prime property markets.

London, New York and Miami benefitted most from this swell of interest, which gathered pace from early 2009. The panic in the financial markets led to a slashing of interest rates by policymakers and new stimulus in the form of quantitative easing, thereby further strengthening the appeal of property as an asset class.

As the global financial crisis unravelled – exacerbated further by the eurozone debt crisis – and as the process of government asset purchases also reduced yields on alternative investments, there was a growing realisation among wealthy investors that luxury bricks and mortar in the best cities offered a safe haven.

This “safe haven” era coincided with the Asian economic boom post-2010, when Asian wealth surged and due to their buoyant economies, currencies strengthened. This meant there was a wall of capital looking for a home – boosting domestic property markets such as Shanghai, Singapore and Hong Kong – but also shifting overseas to markets such as Vancouver, London, New York and Sydney.

At the same time, there were cities where prime prices were rising from a low base, which explains Jakarta’s position at the top of the rankings in 2012 and 2013.

Currency shifts have influenced the direction and volume of capital movements over the decade. The weak pound in 2009 sparked Asian, US and Russian interest in the UK. The weak euro in 2012 saw southern European investors redirect capital to “safer” economies in the north and Miami, too, saw an influx of Latin American purchasers eager to hold a USD asset in a safe and transparent market abroad.

Kick-started by Asian policymakers in 2012, the next phase marked the introduction of cooling measures, with the aim of curbing price inflation using macro-prudential measures.

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 have 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, have grown in number.

The 2017 results – What do they show?

The latest PIRI results published in the 2018 Wealth Report confirm two key trends. Firstly, the extent to which luxury price growth has slowed in some of China’s top tier cities and secondly, the degree to which European cities are again seeing strong growth after a decade of weak growth.

In 2017, the PIRI index increased by 2.1 per cent, up from 1.4 per cent in 2017. This reflects the strong economic growth in 2017, when the International Monetary Fund (IMF) estimated the global economy expanded by 3.7 per cent.

The Chinese city of Guangzhou led the rankings in 2017. However, unlike in 2016 when Guangzhou was joined by Beijing and Shanghai in the top three PIRI rankings, in 2017, it was China’s only entry in the top ten.

In China and across large parts of Asia, tighter macro-prudential measures have achieved their goal of deterring speculative investment. Shanghai and Beijing registered growth of just over 9 per cent and almost 7 per cent respectively, lacklustre by recent standards.

Seoul (13.2 per cent) continues to perform strongly. Across a large part of the city, new cooling measures, including new taxes for owners of multiple properties and tighter lending restrictions, are cooling growth, but the prime area of Gangnam is still seeing strong speculative activity.

Luxury prices in Singapore reached their low in the second quarter of 2015 after lending rules and the Additional Buyer’s Stamp Duty were ramped up. Latest figures show that despite a new tax on homes above S$1 million introduced in February this year, prime prices are recovering. Luxury prices increased 6 per cent in the year to March 2018 and are up 17 per cent since their 2015 low. Policymakers face an unenviable balancing act – maintaining affordability, reducing speculative demand and attracting wealth to generate economic growth. W

Read more about the Prime International Residential Index (PIRI) in The Wealth Report 2018: http://www.knightfrank.com/wealthreport

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