Kate Everett-Allen reports on the regional ups and downs of the world’s luxury residential property markets in 2017
The latest results of our PIRI 100 index, which tracks the performance of the world’s leading prime second home and city residential markets, confirm two significant trends. First, the scale of the slowdown in China’s top-tier cities and, second, the extent to which Europe is seeing positive growth after a decade of weak results.
In 2017, the overall index increased by 2.1%, compared with 1.4% the previous year. This reflects the expansion of the global economy last year, when heightened political tensions were unable to dent growth. Two-thirds of the countries in the PIRI 100 recorded static or positive annual price growth in 2017, with 11% posting double-digit returns.
The Chinese city of Guangzhou leads the rankings, with prime prices up by over 27%. However, unlike in 2016 when Guangzhou was joined by Beijing and Shanghai in occupying PIRI’s top three positions, this year it is China’s only entry in the top 10.
Tighter macro prudential regulations introduced by the government achieved their goal of deterring speculative activity and curbing price inflation across large parts of China.
Shanghai and Beijing registered growth of just over 9% and 7% respectively; lacklustre by recent standards. Guangzhou’s prime market continues to grow because of its relative affordability: prime prices average 70,000 yuan per sq m, compared with 120,000 yuan in Shanghai.
The weakening in Beijing and Shanghai contributed to a slight overall drop across the Asia-Pacific region as a whole, with markets averaging 4.4% growth in 2017, down from 5.2% the previous year.
Seoul (13.2%) and Hong Kong (7.3%) continue to perform strongly despite stringent cooling measures. Both markets face limited supply and significant investment flows from mainland China.
After reaching its peak in the fourth quarter of 2013, a string of government cooling measures drove private residential home prices in Singapore down, but 2017 marked a turning point with prices ending the year almost 6% higher. A brighter economic outlook, rising household wealth and limited supply are supporting price growth.
In India, however, monetary and policy interventions have proved challenging for residential markets. Demonetisation, the Goods and Services Act and the Real Estate (Regulation and Development) Act all left their mark in 2017, with luxury prices dipping 0.6% in Mumbai. But market confidence is now improving.
A lack of supply pushes Sydney’s prime market (10.7%) ahead of Melbourne’s (9.8%) with the gap between luxury and mainstream price performance widening in both cities. Foreign buyer application fees and stamp duty hikes have led to slower rates of annual growth but a strong appetite for luxury bricks and mortar remains.
In 2016 a number of prime residential European markets were still in “recovery mode”. Twelve months on and the PIRI 100 paints a very different picture. In 2017, four of the top 10 performing prime residential markets were located in Europe: Amsterdam, Frankfurt, Paris and Madrid.
Heightened domestic interest has combined with capital flight from turbulent markets overseas. Latin American buyers now account for over 18% of prime purchases in Madrid’s exclusive enclaves, whilst Turkish and Middle Eastern buyers are active in both Paris and Berlin.
London, for its part, bounced back in 2017, moving from 92nd to 72nd place. Prime prices in the UK capital ended the year marginally lower, down 0.7%, compared with a fall of 6.3% a year earlier.
It is not just Europe's cities that are on the up. Italy’s Liguria and the Western Algarve are Europe’s highest-ranking second home markets, recording annual growth of 6.6% and 6.5% respectively. Both markets were hit hard by the global financial downturn and the fallout from the euro zone debt crisis: values tumbled by 30-40% in peak-to-trough terms.
In Spain, tighter supply has helped cushion prices across the country. In 2016, around 34,300 homes were completed nationwide. The figure was close to 600,000 a decade earlier, according to Spain’s Ministry of Development. Barcelona, Madrid, Marbella and Mallorca all registered positive price growth; only Ibiza saw a decline.
Emmanuel Macron’s presidential victory buoyed France’s prime residential markets. In 2017, the 11 French markets tracked by the PIRI 100 recorded 1.2% growth on average compared with just 0.1% in 2016.
For Monaco, 2017 was a year of two halves. Prices climbed 2% in the first six months of the year but later stabilised, resulting in annual growth of 0.5%. Record prices were achieved in parts of Monte Carlo, but demand for older apartments in secondary locations was noticeably weaker.
Chamonix leads the Alpine resorts with prices ending the year 4.5% higher. The strength of the Swiss franc and restrictions on foreign buyers explain the weaker performance of some Swiss resorts.
US markets put in a steady performance in 2017. Aspen sits third in our overall rankings recording 19% growth. The top end of this upmarket ski resort saw sales volumes strengthen, but the scale of growth is more a reflection of weaker performance in 2016.
Los Angeles, New York and Miami recorded moderate growth of 5.1%, 4.6% and 2.2% respectively in 2017. In New York, the 4.6% rise reflects the conclusion of a number of high end sales as vendors across New York City (not just Manhattan) displayed greater flexibility on price. This was evident across both the resale and new homes market.
Despite the strong US dollar, foreign buyers were active in 2016/17, spending over US$153 billion on US residential property between April 2016 and March 2017 according to the National Association of Realtors.
A 15% foreign buyer tax, along with a move by China to tighten capital controls, account for Toronto and Vancouver’s slide down the rankings in 2017. Prices have now corrected and are stabilising. Vancouver has seen annual growth slow from 14.5% to 3.5% and Toronto from 15.1% to 8.7% over the course of 2017.
In Africa, Cape Town takes second place in the PIRI 100, recording almost 20% growth year-on-year. Coupled with international demand, the Atlantic Seaboard is also attracting buyers from elsewhere in South Africa, but both new and existing stock are in short supply.
In the Middle East, Istanbul takes top place with growth of almost 5%, but with inflation in Turkey estimated to have hit almost 11% in 2017, prices declined in real terms.
Dubai’s story in 2017 was one of stabilisation. In the first nine months of 2017 prime sales volumes increased by 6% and the total value of prime transactions reached Dh2.27 billion, up 9% from the same period a year earlier. Ahead of Expo 2020, large scale investment in new infrastructure projects is expected to filter through into market sentiment.
Prime market performance in the Middle East remains closely linked to the trajectory of oil prices, a pattern reflected in Russia and Africa. Although oil prices dipped in the first half of 2017, they rallied in the second half but it was not enough to pull cities such as Moscow (-11.3%), Doha (-15%) and Lagos (-25%) off the bottom of the rankings.
Against the political odds 2017 was a year when the economic stars aligned and relatively healthy growth was seen across most markets, including, for the first time since 2008, a solid performance from European markets.
The outlook for 2018 is that economic growth will continue to support prices, but performance could be tempered as more central banks start to raise interest rates.
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Kate Everett-Allen reports on the regional ups and downs of the world's luxury residential property markets in 2017.
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