Global Luxury Prices Move Higher

Luxury residential property prices rose by 3.9% in the year to March, continuing to outperform the mainstream market, according to Knight Frank’s latest Prime Global Cities Index, which tracks the value of the most expensive real estate in the world’s key global cities. North America pulled up the average, with San Francisco, Miami and Vancouver recording the strongest annual growth of 14.3%, 12.2% and 11.8% respectively. In Australia, Sydney’s luxury market grew by 7.4% over the 12-month period, and Melbourne’s by 7.2%. Take these regions away and growth shrinks to just 2.3%, however. High-end homes in the top 5% of Europe’s residential market, including London, have been particularly weak performers, falling by 0.2% on the same 12-month period from March 2014. London is one of the eight cities that continued to outperform the index last year, but uncertainty surrounding the outcome of tomorrow's U.K. general election has dampened the usually buoyant market in England’s capital. Growth in the prime market is now just 3.3%. Properties in Monaco, Paris, Vienna, Geneva and Zurich all fell by as much as 5%. In Moscow luxury prices are up 0.6%, but because a large proportion of Russian wealth is held in U.S. dollars, the weak ruble has caused prices to fall by 38% in dollars, year on year. In Hong Kong tighter mortgage restrictions on homes below HK$7 million are pushing more buyers towards the top end of the market, with prices in this sector rising by 5.5% in response. Kate Everett-Allen, partner of residential research for Knight Frank, says: “The ongoing tussle between globalization, such as wealth creation and improved connectivity on the one hand, and protectionism, such as foreign buyer restrictions and capital controls, on the other, is set to dominate the purchase decisions for luxury buyers and hence market performance going forward.” Despite the more subdued performance of some cities’ luxury markets, the index has climbed overall by 46% since the financial crisis low in the second quarter of 2009. Over the coming year “tier one” cities in the U.S., Canada and Australia such as New York, Vancouver and Sydney are expected to continue as the best performers, partly because of strong economic growth, said Everett-Allen, and partly because of growing domestic and international demand. Most of Europe’s cities look set to remain in the bottom half of the rankings. “Some buyers are watching patiently from the sidelines waiting to see the full ramifications of the Greece/eurozone bailout, the filtering through of QE and whether the euro strengthens.” Paris looks like good value for investors, with the new supply of luxury properties "severely constrained" and prices ranging from $17,000 to $20,000 per square meter, significantly below similar quality properties in New York, London or Hong Kong. In Asia, Tokyo is “one to watch,” said Everett-Allen. The depreciation of the yen and high yields have attracted more private and institutional investors from Hong Kong and Europe.