Knight Frank, an independent global property consultancy, today launches the Prime Cities Forecast Report which assesses the performance of ten prime residential city markets in 2016, on top of an estimate of luxury price growth in 2015.
2016 forecast highlights:
Sydney is set to see the strongest prime residential price growth in 2016. However, the pace of price growth is expected to slow from 15% year-on-year in 2015 to 10% in 2016. Australia’s economic slowdown, weaker stock market performance in recent months and the introduction of foreign investment fees explain the lower rate of growth in 2016.
Three cities are expected to see a decline in prime property prices: Hong Kong (-5%), Singapore (-3.3%) and Paris (-3%), with Hong Kong overtaking Singapore as the weakest-performing luxury residential market in 2016.
Four cities are forecast to see stronger price growth – or a slower rate of decline – in 2016 than 2015: London (2%), Paris (-3.0%), Geneva (0.0%) and Singapore (-3.3%).
“Prime prices across all ten cities are, on average, expected to have increased by approximately 3% in 2015, but average annual growth is forecast to slip to 1.7% in 2016. This confirms Knight Frank’s view that lower returns will become the norm in the short to medium term. Events in the world’s two largest economies look set to dominate proceedings in 2016. The scale of the slowdown in China and the speed of further US interest rate rises will determine the performance of property markets across developed and emerging markets alike over the next 12-18 months,” says Kate Everett-Allen, Partner, International Residential Research, Knight Frank.
“Whilst luxury price growth looks set to converge, monetary policy globally is likely to follow a divergent course. The US and UK will be tightening monetary policy whilst the Eurozone, Japan and China are expected to either loosen policy further through additional stimulus measures or are likely to stick to the status quo in policy terms,” adds Everett-Allen.
Across Asia Pacific, Nicholas Holt, Head of Research for Asia Pacific, Knight Frank Asia Pacific, emphasises, “Many of the Asia-Pacific prime residential markets will face existing and new headwinds in 2016, with our forecasts showing quite a range of price performances, including negative price growth in Hong Kong and Singapore. Despite that, there remain pockets of opportunity in these two markets, as prime supply is relatively limited. Elsewhere, Sydney will continue to see strong growth, while Shanghai – along with other Tier-1 Chinese cities – is expected to continue to remain resilient despite the economic slowdown.”
The report’s residential market Risk Monitor provides the latest assessment of key risks to the world’s prime residential markets.
Kate Everett-Allen comments, “The Fed’s recent rate rise and the impact of geopolitical tension on the world’s top cities are currently considered the highest risk to the luxury city markets. In previous years, the Eurozone and its potential break-up was the top threat to economic and property market stability but jitters over its demise have subsided as the ECB has announced an extension to its QE programme. Instead, emerging markets and the risk of potential deflationary cycles represent the major headwinds for the global economy.
“For most cities, low income growth and a slowing domestic economy are considered the lowest risks to luxury markets. There is a chance that the recent 0.25% US rate rise and resulting strong dollar could spark a new wave of safe haven capital flows from emerging markets to first-tier luxury residential markets. However, with new supply in several markets expanding (Hong Kong, London, Miami, New York) we think it’s unlikely we will see prices respond in the same way they did post-Lehman.”
The ten risks assessed include:
- China slowdown
- US interest rate rise
- Weakness in emerging markets
- Slowing domestic economy
- Slowing global economy
- Low income growth
- Geopolitical crisis/interstate conflict
- Market regulation
- Currency risk
- Sustained slump in oil prices/commodity prices