_Global luxury house prices: performance in 2018 so far
In our analysis of the Prime International Residential Index (PIRI 100), published in The Wealth Report back in March, we noted the extent to which prime prices in European cities were strengthening, while Chinese cities were in generalseeing moderate growth in luxury residential prices.
Six months on, a focus on 20 of the cities within the PIRI 100 finds these trends persisting – and some new ones emerging. As previously forecast, price growth is slowing at a global level.
Across the 20 cities tracked, average prime prices rose by 6% in the year to December 2017; by June 2018, this figure had dipped to 4.2%.
With the cost of finance set to rise in a number of markets, more stringent cooling measures being imposed, and slower growth in China’s first-tier cities, lower price growth will characterise the overall results of the Index for some time to come.
Reach for the stars: The Los Angeles property market leads the way in the US
Inevitably, there are outliers. Singapore and Tokyo, for example, have seen a resurgence in growth. In Singapore, recovery is a consequence of rising foreign demand and high land bids by developers, which has fed through to new-build prices; in Tokyo, growth is linked to economic sentiment, the city’s relative value compared with Hong Kong and Singapore, and investment ahead of the 2020 Olympic Games.
Madrid continues to fly the flag for Europe, with prime prices up 10.3% over a 12-month period. Berlin saw prices rise by 8.5%, and Paris, where domestic buyers, buoyed by an improved economy and cheap finance, are investing once more, saw prices accelerate 6%.
Beijing and Shanghai currently sit mid-table. China’s decision to pare back its housing subsidy programme will have an impact on mass market sales in smaller cities, but we expect luxury price growth in first-tier cities to persist.
"With the cost of finance set to rise in a number of markets, more stringent cooling measures being imposed, and slower growth in China’s first-tier cities, lower price growth will characterise the overall results of the Index for some time to come."
US cities registered positive growth in the year to June, reflecting the general health of the economy, with Los Angeles leading the pack at 7.8%. In some cities, inventory levels are still rising, and it is likely to be 2019 before the full impact of Donald Trump’s State and Local Tax (SALT) reforms is known.
Property market regulations continue to determine the direction and volume of capital flows. Since our last update, Hong Kong, Singapore and Vancouver have all seen new macro-prudential measures introduced, from vacancy taxes to stamp duty hikes and tighter lending rules.
On the one hand, investors may rue the rise in property market regulations which, in many cases, will add to their bottom line in the form of purchase or disposal taxes.
On the other, new regulations have heightened market transparency, enabling some purchasers to move into emerging markets with greater confidence.