Price growth slowing in prime city markets

Written by Alexander Teo

12 August 2011


Price growth in prime city residential markets has slowed, and this is likely to continue due to rising concerns over the global economy, according to global real estate consultancy Knight Frank.


According to the 2Q11 Knight Frank Prime Global Cities Index, property prices in prime city markets monitored by the index rose by 6.8% in the year to June 2011 compared with 14% a year earlier. The index was first released in 1Q11 and monitors the performance of prime or luxury housing markets in key global cities. Its definition of prime is the top 5% of the mainstream housing market in each city.


“The index confirms that annual price growth in prime city markets has slowed rapidly (from nearly 14% in 2Q10 to barely 7% in 2Q11). With growing concern over sovereign debt and even the outlook of the global economy, it seems likely that this process will continue — with still lower growth in the world’s prime city markets a likelihood,” said Liam Bailey, head of residential research at Knight Frank.


Bailey said the fact remains that prime residential markets have acted as safe havens for investors over the past two years — with growing demand for property in London, New York and other key global cities as economic and geo-political concerns pushed investors to look for stable locations for their wealth.


“The biggest risks seem to be concentrated for the time being in Asia — with the ongoing process of managed market cooling being buffeted by rapid supply growth — the outcome of this process is likely to determine how healthy the Prime Global Cities Index will look a year from now,” he said.


The 2Q11 Knight Frank Prime Global Cities Index saw Hong Kong with its strong annual growth of 16.1% outperforming Paris which topped the table last quarter.


Despite the global financial crisis, prime property prices in Hong Kong have followed an upward trend since 4Q08, rising 75.9% over this period, said the report.


However, the same cannot be said for all Asian cities. Some appear to be responding to their governments’ regulatory measures to dampen price inflation at varying speeds. For instance, Singapore saw prime prices fall by 2% in the three months to June 2011 while Hong Kong, Beijing and Shanghai continued to record positive quarterly growth.


A rise in Chinese and Indonesian buyers in the last quarter could not keep Singapore’s market from slowing. This indicates that the Asian property market is moving into a new more negative phase, with concerns over the stability of the global economy, and in particular over the EU and US debt, causing uncertainty among Asian investors who have been pushing prices higher across the main cities over the past two years.


Administrative measures such as new property taxes, restrictions on the number of property purchases and the promotion of subsidised housing have started to influence sales volumes in the key Asian cities but this has yet to feed through in a meaningful way on prices in several markets. However, Knight Frank expects this to change in 2H11.


In Paris, market conditions began to slow in 2Q due to the increased supply in high-profile prime locations as vendors, particularly in the €4 million (RM17 million) to €5 million price bracket, have taken advantage of the recent surge in prices. Interestingly, foreign demand for Parisian property has remained healthy over recent months — with a number of new enquiries from the Middle East and from Syrian buyers in particular.


While buyers in Monaco face lower prices than at their peak in 3Q08, they are still seeing asking prices of €40,000 to in excess of €50,000 per sq m for prime apartments, a reflection of the ongoing imbalance in the principality between tight supply and cautious demand.


Conditions in London’s prime market remained strong. “Despite a recent rise in supply we expect prices to continue to grow in the second half of 2011, albeit at a slower pace. Buyer registrations have held steady and viewings have increased over the past two months,” said Bailey.


Over in Russia, St Petersburg and Moscow have recorded positive annual growth since 1Q10, with prime property prices in St Petersburg rising by 12.2% in the year to June 2011.The strong price inflation is partly attributable to an improvement in economic and business sentiment in Russia since the start of 2011.


This article appeared on the Property page, The Edge Financial Daily, August 12, 2011.