Political uncertainties coupled with vigorous market cooling measures have hit luxury real estate markets around the world, resulting in a decline in growth in nearly half the cities Knight Frank tracks in its Prime Global Cities Index.
The index released Monday, which tracks the performance of luxury residential prices in key global cities, increased 3.8% in the third quarter, down from 4.6% in the previous quarter.
The pace of growth declined in 18 of 37 cities compared with last quarter. Among the cities that saw a decline were Vancouver, Toronto, London, Sydney and Melbourne, where new taxes have been imposed within the last year through higher stamp duty, additional taxes for foreign buyers, or the closing of tax loopholes for non-residents.
In addition, unfolding political events are holding back luxury buyers.
“Elections and referendums tend to provoke a wait-and-see approach in the minds of buyers and this has been the case both in terms of the U.K.’s Brexit vote in June and the forthcoming U.S. presidential election,” said Kate Everett-Allen, partner of International Residential Research of Knight Frank, a London-based global real estate consultancy.
Other key findings in Knight Frank’s report include:
- Although Vancouver’s price growth still tops the list year-over-year, it slipped to 1.5% in the third quarter compared with the second quarter
- Performances of European cities are split, while Dublin saw strongest price growth, Paris was the continent’s weakest performer
- New York’s luxury home prices remain resilient, gaining about 1% on a quarterly and annually basis
- In Hong Kong, the luxury market has rebounded 4.8% in the third quarter, but it was still 2.6% down from the same period last year
- Knight Frank predicts that currency, in particular the trajectory of the U.S. dollar, will be critical to future prime market performance globally.
Here’s a closer look at some prime markets:
Vancouver Cools Off
Vancouver continues to lead the annual rankings, with a 31.6% increase over last year. But it is bound to surrender the top spot to Shanghai next quarter, if the current growth rate continues. The luxury home prices increased only 1.5% from July to September. This compares with a quarterly average of 8.1% recorded in the last four quarters.
A new 15% tax for foreign buyers this year and talk of a further tax on vacant homes in 2017 is slowing sales, according to Knight Frank.
London Prices Suffer From Stamp Duty
Prime prices in London declined by 2.1% in the year to September, and stamp duty and Brexit vote are mainly to blame, according to Knight Frank. Stamp duty remains a more decisive factor in the prime London market than the E.U. referendum.
Manhattan Proves Resilient
The signs of a slightly softening in Manhattan’s luxury market were reflected in the moderated sales volumes, according to Knight Frank. In terms of luxury prices, New York proved to be resilient. In third quarter, the home prices in Manhattan increased 1.0% from the second quarter. Compared with last year, the price index increased 0.9%.
The average price of a Manhattan apartment exceeded U.S.$2 million earlier in 2016.
Chinese Cities See Prices Soaring
Chinese cities again dominated Knight Frank’s top 10 rankings for annual price growth, with three first-tier cities, Shanghai, Guangzhou and Beijing recording 23.4%, 14.3% and 7.1% price growth respectively.
But since local governments have introduced a range of measures this month to cool demand, the price growth is expected to slow down.
Hong Kong, where luxury residential prices are 4.7% below their peak in the second quarter of 2015, has halted its decline with prices rising by 4.1% in the third quarter.
Europe Witnesses Two Tales
In Europe, strong demand has led to a recent upturn in luxury sales. Dublin, with a 5.5% increase, is Europe’s strongest performer. Paris, on the other hand, was the continent’s weakest, as the average price dipped 3.8% over a year period.
Most European countries are still reeling from the U.K.’s Brexit vote, but the real estate market was propped up by stimulus plans and a negative interest rate.
Strong Dollar Dominates the Market Trend
Over the next six to 12 months, currency movements will be the single largest determinant of international demand in the world’s top cities, according to Knight Frank.
Investors are increasingly looking to the U.S. as their safe haven of choice as the world economy stutters, but a strong dollar will have repercussions globally. While stronger dollar in general will make U.S. real estate less attractive to foreign buyers, who will hence turn to other gateway locations, but those with dollar-backed currencies will see their purchasing power heightened.
|Knight Frank Prime Global Cities Index, Q3 2016|
|City||Ranking||12-month % change
(Sep 15-Sep 16)
|3-month % change
(Jun 16-Sep 16)
|Source: Knight Frank|
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