While solid economic growth is expected to spur demand for global prime properties in 2018, its pace will be impacted by more stringent cooling measures in most countries, according to the Douglas Elliman/Knight Frank Wealth Report 2018 released Wednesday.
“The outlook for 2018 is that economic growth will continue to support prices, but performance could be tempered as more central banks start to raise interest rates,” said Kate Everett-Allen, head of international residential research at Knight Frank, in the report.
Coincidentally, the U.S. Federal Reserve announced Wednesday it would raise short-term interest rates by a quarter of a percentage point.
Looking back at the 10 years since the 2008 global financial crisis, Knight Frank found that the pace of growth in prime property prices might have peaked in 2013.
The Prime International Residential Index 100, which tracks the performance of the world’s leading prime second home and city residential markets, was in negative territories in 2008 and 2009, with an annual decline of 0.2% and 5.5%, respectively. Growth picked up pace slowly, and peaked in 2013, with the index gaining 2.8%.
Last year, against all odds, the index gained 2.1%, with two-thirds of the locations tracked in the index reporting positive annual price growth, which reflects the expansion of global economy, according to Knight Frank.
The best-performing cities over the last decade have been in Asia, accounting for seven incidences out of 10. China’s Shanghai topped the list for three years while Guangzhou landed the first place in 2017, with home price increasing 27.4% year-over-year.
However, a noticeable trend in 2017 was the slowdown in China’s top-tier cities. In 2016, Guangzhou was joined by Beijing and Shanghai in occupying the index’s top three positions. But Guangzhou was the only city that made to the top 10 in 2017.
“Tighter macro prudential regulations introduced by the government have achieved their goal of deterring speculative activity and curbing price inflation across large parts of China,” Ms. Everett-Allen said. “Shanghai and Beijing registered growth of just over 9% and almost 7% respectively; lackluster by recent standards.”
Cooling measures have been spreading in Asia and elsewhere in recent years, as governments try to balance capital inflow and housing affordability, according to Ms. Everett-Allen.
In 2010, Hong Kong, China’s mainland and Singapore began to introduce measures to deter speculative investment as home prices flew at an annual rate of 50% approximately, which would potentially cause a housing bubble in very short time.
Other countries have followed suit, including Malaysia (stamp duty increase), the United Arab Emirates (cap on mortgage lending, transfer fee doubled), the U.K. (changes to stamp duty) and Australia (foreign buyer fee, stamp duty and land tax changes).
In Canada, the provincial governments of British Columbia and Ontario have imposed a 15% foreign buyer stamp duty on purchases in parts of Vancouver and Toronto.
Meanwhile, New Zealand announced a ban on foreigners buying existing homes effective in early 2018.
“Apart from a handful of European markets—where the focus was on attracting, not deterring foreign investment in the form of Golden Visas and investment incentives—policymakers in most prime markets focused on controlling or at least tracking capital flows into and out of their property markets,” Ms. Everett-Allen said.
Europe experienced a resurgence in 2017, with the region occupying four of the top 10 rankings in the Prime International Residential Index 100. However, for global real estate investors, a weakening dollar, a rise in oil prices and interest rates and other monetary and financial policies are worth considering.
“As we enter a new phase of higher interest rates and the removal of stimulus, price growth will continue to be strongly linked to domestic economic performance and wealth creation, but buyers will need to monitor markets carefully for further policy interventions, which look set to increase,” Ms. Everett-Allen said.
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