PIRI 100: Which cities top the price-growth forecast
How cities around the world rank according to predicted price growth
4 minutes to read
Lower for longer: it’s a neat summary of both the direction of travel for interest rates across the world, and the prospects for prime residential price growth.
In 2019, there were over 150 interest rate cuts globally, and quantitative easing is now business as usual in the US and the euro zone. The low cost of debt has supported demand for residential property in some markets, but overall sales volumes and price growth have fallen, as Kate Everett-Allen confirms. But what about 2020?
Paris leads our forecast with price growth of 7%, fuelled by economic stability, low interest rates, limited new-build prime supply and strong tenant and second home demand. The Grand Paris Project and the 2024 Summer Olympics will provide further stimulus.
In second place, Berlin and Miami are both expected to see prime price growth of 5%. Sound fundamentals – a good demand/supply ratio, low rates of home ownership and significant regeneration – will keep Berlin high in the rankings despite a proposed rent cap, while Miami should continue to benefit from the State and Local Tax (SALT) deduction.
At 4%, Geneva and Sydney are both seeing a recovery, thanks to lower interest rates and a limited supply pipeline. Both are also enjoying significant transport investment: the Leman Express in Geneva and in Sydney, the CBD & South East Light Rail.
Madrid, Singapore and Melbourne are all expected to register price growth of 3% in 2020, with international enquiries (Madrid), redirected capital outflows (Singapore) and lower interest rates (Melbourne) boosting demand. In Los Angeles, our forecast of 2% hides a complex picture: below US$2 million there is strong demand for quality properties; above US$10 million the market is patchy at best; and between the two there is moderate price appreciation.
Against a tumultuous political backdrop, Hong Kong’s luxury segment will remain largely static. The Hang Seng leads the mass residential market by three to six months, but luxury prices are largely resilient with a weak correlation to both GDP and equities, confirmed by a number of high-end transactions in The Peak in 2019.
For Mumbai (-1%), a deteriorating economic environment will continue to influence market liquidity, exacerbated by an increase in stamp duty to 6%. In London, our 1% forecast reflects a boost in confidence following the UK general election result, which provided a strong mandate for the Conservative Party to implement its policy programme – including delivering Brexit.
For Dubai (-2%), significant infrastructure investment in the lead up to Expo 2020, the prospect of some 25 million visitors and the introduction of visas of up to ten years will boost prime demand. In New York (-3%), lower mortgage rates and strong employment indicators should start to cancel out the growth in unsold new inventory which has built up in recent years.
Despite sitting at the bottom of our 2020 rankings, Vancouver’s 5% decline reflects an improving scenario. Shrinking inventories, and a gradual adjustment to property market regulations, are aiding a slow recovery in buyer sentiment.
Here’s what we predicted for 2019 and what actually transpired. Of the 20 locations for which we provided forecasts, we were accurate to within two percentage points in half of them.
Bullseye
We said 6% for Berlin, which ended up at 6.5%. On the money, if we say so ourselves.
Pretty accurate
We got the direction of travel correct for Geneva and Shanghai but were too bearish on market potential. In four markets we were wrong-footed by key events: the Brexit delay; US tax changes; and the slowing European economy. This meant our forecasts for London, Miami, New York and Monaco were rather too positive.
Wayward
In four markets we were well off the mark – but we are claiming mitigating circumstances. In Hong Kong, our forecast was bearish due to 2018's macro-prudential measures and higher interest rates. However, the mooted vacancy tax failed to materialise and the cost of borrowing reversed its course as the dollar-pegged market felt the impact of the US Federal Reserve’s three rate cuts. The prime market was less influenced by the political turmoil than the mainstream. In Mumbai, while the market remained weaker, government interventions such as cuts to the Goods and Services Tax and stressed asset funds prevented an overall decline. Cape Town and Vancouver also took us by surprise. In Cape Town, a weaker rand and a slowing economy influenced prices with some vendors lowering their price expectations, while Vancouver continued to feel the impact of government policies aimed at achieving affordability and stability, with many buyers and sellers adopting a "wait-and-see" approach.