Europe continues to lead global residential price growth, as China, the world’s hottest market for the past couple of years, reins in its runaway home prices.
In the first quarter of this year, 15 out of the 24 global cities that posted a double-digit increase in home prices were in Europe, according to the Knight Frank Global Residential Cities Index released Wednesday.
Leading the group was Berlin, with an annual growth rate of 14.9%, followed by Rotterdam, Netherlands, at 14.8% and Budapest, Hungary, at 14.4%.
"The recovery in European cities is largely attributable to the region’s improved economic outlook and the supply/demand imbalance," said Kate Everett-Allen, author of the report.
More:German Cities Among the World’s Fastest-Growing Housing Markets
In 2017, the EU-28 recorded a 2.5% GDP growth year-over-year, compared to -0.4% five years earlier, Ms. Everett-Allen said, citing data from Eurostat.
While economic output has increased, jobs have been created and consumer sentiment has improved, housing supply has failed to keep pace.
"Despite government incentives in some markets, target completion rates are being missed," Ms. Everett-Allen said. "This imbalance between demand and supply is putting pressure on prices."
Conversely, no Chinese cities, except Hong Kong, were represented in the top 10 or top 20 lists, where they had dominated in the past couple of years. Faced with a potential housing bubble, the Chinese government has been rolling out measures to tighten mortgage financing and clamp down on speculative investment in the real estate market.
Housing markets were noticeably cooler in Australia and New Zealand in the first three months of 2018. Wellington fell to 38th place with an annual price growth of 7.2%, from 11th place a year ago when home prices grew 20.6% year-over-year.
Sydney registered a negative 0.5% growth rate in the first quarter, compared to a 14.4% increase in the same period last year.
| Residential Prices in Selected Global Cities | ||||
| City/Country | 2018 Rank | Y-O-Y change | 2017 Rank | Y-O-Y change |
| Berlin, DE | 5 | 14.9% | NA | NA |
| Hong Kong, CN | 3 | 15.6% | 17 | 18.6% |
| London, UK | 124 | -0.6% | 107 | 3.0% |
| Madrid, ES | 23 | 10.3% | 85 | 4.9% |
| Seattle, US | 10 | 12.9% | 29 | 12.2% |
| Shanghai, CN | 120 | -0.3% | 13 | 19.7% |
| Surat, IN | 1 | 22.3% | NA | NA |
| Sydney, AU | 123 | -0.5% | 23 | 14.4% |
| Vancouver, CA | 4 | 15.4% | 30 | 12.2% |
| Wellington, AZ | 38 | 7.2% | 11 | 20.6% |
| 150-city Index | 4% | 6.4% | ||
| Source: Knight Frank | ||||
Other key findings include:
Surat, a west coast city in India, topped the index with a 22.3% price increase due to a low base in the first quarter of 2017, when the country demonetized its high-value currency Seattle continued to be the fastest-growing U.S. housing market, with a 12.9% price appreciation year-over-year. Among the 10 Canadian cities Knight Frank tracks, only Vancouver logged a two-figure growth rate (15.4%). Southern Europe is increasingly polarized. While Italian cities were among the slowest-growing cities, Spanish and Portuguese cities registered strong growth.
Government Measures Cool Housing Markets
Overall, Knight Frank’s 150-city index rose 4% in the first quarter, marking the slowest growth rate since the third quarter of 2015. By comparison, the index increased 6.4% in the first quarter of 2017.
Further, while 12 cities around the globe posted price growth of over 20% in the first quarter last year, this year only saw one city reach that level, India’s Surat, but under unprecedented circumstances.
The index’s weaker performance is partly due to macro policies introduced by some big countries, including interest rate hikes, and those "along with escalating affordability constraints account for the index’s weaker performance," Ms. Everett-Allen said.