How luxury home markets will perform in 2019

The Wealth Report forecasts how key prime residential markets are set to perform in 2019, and looks back at how its predictions for 2018 panned out.

Words: Liam Bailey, Global Head of Research, Knight Frank

At a glance

  1. Madrid, Paris, Berlin and Cape Town top our 2019 forecasts at 6%
  2. The next 12 months will see a shift in the performance of global property markets, as purchasers and investors respond to a more uncertain global economy, a proliferation of market regulation and the rising cost of debt.
  3. Trade tensions, political events and a rising debt burden, alongside rising interest rates, will conspire to ensure that economic growth slows across the world in 2019.
  4. This change in the economic landscape will be reflected in lower price growth in global residential markets. More muted growth means real estate investment strategies will change as investors focus on income, asset management and development opportunities to secure outperformance as debt costs rise.
The full read

Residential forecast

Of the cities that we forecast, we expect that three (Dubai, Mumbai and Hong Kong) will experience price falls this year, two (New York and Singapore) will see prices remain static and that the remainder will see prices rise – albeit modestly.

Key European cities lead with the highest growth. These markets have become increasingly popular investment hubs for European and global investors, with a growing presence from Chinese residential buyers.

Healthy tenant demand, relative good value and an attractive lifestyle offer will ensure price growth in markets like Paris, Berlin and Madrid comfortably exceeds 5% in 2019.

Growth at this level is still positive, and well above wage inflation, a traditional benchmark for long term price appreciation, but is marginally down on the level seen in 2018. Despite the end to quantitative easing in the euro zone, a weaker economic outlook and a fragile political landscape, relative value in Europe will support growth.

Tax and regulation will continue to drive market performance in 2019. Those markets that have led innovation in these areas, especially Hong Kong and Singapore, will see lower growth as buyers adjust to new taxes and restrictions.

Prices are falling in Hong Kong and will continue to do so in 2019. Concerns about higher borrowing costs and a new vacancy tax, which prompted a rush by developers to sell empty properties, have contributed to the slide.

Activism from regulators will likely see price falls of up to 10% this year. Interest rate rises in the US will also add pressure on this dollar-pegged market.

Key European cities lead with the highest growth. These markets have become increasingly popular investment hubs for European and global investors, with a growing presence from Chinese residential buyers.

While purchase restrictions and additional costs placed on foreign buyers have weakened the mainstream housing market in Sydney, the prime market has held up due to a lack of new supply supporting the city’s prime market.

Cooling measures implemented unexpectedly in July, including higher stamp duties and tougher loan-to-value rules, worked to stop the incipient house price recovery in Singapore. While we expect the market to see some improvements in 2019, prices are unlikely to rise this year.

Vancouver, which has seen significant new taxes and regulations implemented in recent years, compounded most recently by hikes to foreign buyer tax and stamp duty in the early part of last year, was unsurprisingly our weakest prime market in 2018. We expect to see prime prices stabilise in 2019 as recent price falls mean local buyers will identify buying opportunities.

After four years of falling prices, an adjustment that reflected higher stamp duty, prices in London are now between 10% and 20% below their 2014 peak.

With higher taxes priced in, we believe activity will strengthen once political uncertainty in relation to Brexit starts to recede and pent up demand is released. Our 1% forecast for growth in 2019 could well be pessimistic.

 

In New York, economic growth and wealth creation are starting to cancel out the high completion rates observed in the prime market over the last few years. While we don't expect any growth in 2019, sales volumes should increase.

Healthy tenant demand, relative good value and an attractive lifestyle offer will ensure price growth in markets like Paris, Berlin and Madrid comfortably exceeds 5% in 2019. Growth at this level is still positive, and well above wage inflation, a traditional benchmark for long term price appreciation, but is marginally down on the level seen in 2018.
 

How did we do last year?

In the spirit of full disclosure and transparency we set out in the table below our forecasts for prime residential price growth in 2018 against the actual outturn for the year. Our forecasts were published at the beginning of 2018 and have not been subject to any “revisions” part way through the year.

Clearly, we could not have been expected to hit our predicted 7.6% rise absolutely spot on – it is the direction of travel we are forecasting. So to help our assessment we have put our forecasts and outturn results into three broad groups: below 0%; 0% to 5%; and 5%+.

On this basis, eight out of our 14 forecasts were “correct”. However, I would argue that two more were nearly correct, making us correct either 57% or 70% of the time, depending on the generosity of the interpretation. For those forecasts where we were slightly wide of the mark, our defence is outlined below.