Economic Uncertainty Hits Luxury House Prices Around The World

Luxury homes in some of the world’s top cities saw a slowdown in price growth in the last quarter as new taxes, elections, referendums and economic jitters took hold.
Despite an average annual growth rate of 3.8%, 18 of the 37 cities tracked by our index saw their rate of price growth slide compared with last quarter.
Among them were Vancouver, Toronto, London, Sydney and Melbourne; all cities where new taxes have been imposed in the last 12 months; either in the form of higher stamp duty, additional taxes for foreign buyers or the closing of tax loop holes for non-residents.
Vancouver continues to lead the annual rankings but looks set to surrender the top spot next quarter having recorded quarterly price growth of only 1.5% in the three months to September. This compares with a quarterly average of 8.1% recorded in the last four quarters. A new 15% tax for foreign buyers and talk of a further tax on vacant homes in 2017 is slowing sales.
Kate Everett-Allen, Partner, International Residential Research, Knight Frank, says, “Elections and referendums tend to provoke a ‘wait-and-see’ approach in the minds of buyers evidenced in the run-up to the UK’s Brexit vote in June and the forthcoming US presidential election.”
Alice Tan, Director and Head of Consultancy & Research, Knight Frank Singapore, comments, “Despite the prevailing muted sentiment across the Singapore private homes market, amid economic weakness and property cooling measures, annual price recovery of Singapore’s ultra-luxury homes has been continuing for the past 3 quarters this year. The search for safe haven property investment destinations and the increased value proposition compared to elevated home prices in other global gateway cities largely supported the demand revival for Singapore ultra-luxury homes. However, growing headwinds such as the prospect of a slow economy and possibly lack of an uplift in private home sales could limit price growth of ultra-luxury homes going forward in the next 6 months or so.”
Prime prices in London declined by 2.1% in the year to September. Stamp duty remains a decidedly bigger influence on the prime London market than the EU referendum and in some instances the uncertainty surrounding Brexit has been a catalyst for overdue price reductions.
The average price of a Manhattan apartment exceeded the US$2m threshold earlier in 2016 and although sales activity has moderated, luxury prices in New York are proving resilient.
Chinese cities such as Shanghai (23.4%), Guangzhou (14.3%) and Beijing (7.1%), dominate our top ten rankings for annual price growth but local governments have enacted a range of measures this month to cool demand suggesting a more muted outlook.
Hong Kong, where luxury residential prices are 4.7% below their Q2 2015 peak, has halted its decline with prices rising by 4.1% in the three months to September. Strong demand has led to a recent upturn in sales.
Dublin (5.5%) is Europe’s strongest performer and Paris (-3.8%) the continent’s weakest. Still reeling from the UK’s Brexit decision, but for the most part propped up by QE and a negative interest rate, Europe is second only to Russia & the CIS as the world’s weakest-performing world region.
Currency movements will be the single largest determinant of international demand in the world’s top cities over the next 6 to 12 months. Investors are increasingly looking to the US as their safe haven of choice as the world economy stutters, but a strong dollar will have repercussions globally.
Data Digest
The Knight Frank Prime Global Cities Index enables investors and developers to monitor and compare the performance of prime residential prices across key global cities. Prime property corresponds to the top 5% of the wider housing market in each city, unless otherwise indicated. The index is compiled on a quarterly basis using data from Knight Frank’s network of global offices and research teams.