Mansion Global

Globally, Luxury Real Estate Price Growth Slowed in 2016

China saw ‘eyebrow-raising’ gains, while price declines burdened oil-dependent cities

Save

Three Chinese cities claimed the top rankings in 2016: Shanghai, Beijing and Guangzhou.

uschools / Getty Images
Three Chinese cities claimed the top rankings in 2016: Shanghai, Beijing and Guangzhou.
uschools / Getty Images

Around the world, luxury real estate has experienced slower growth, dragged down by an array of factors that range from new taxes in some municipalities to slow economic recovery in Europe and stagnant oil prices, a new report says.

Knight Frank released on Wednesday its latest Prime International Residential Index, a ranking of the 100 key locations worldwide for luxury real estate. Across those locations, luxury property values rose only 1.4% in 2016, a decline from 1.8% in 2015.

More:Click to Read London is Favorite Destination of Ultra Wealthy Home Buyers

Areas around the Pacific led the world, with home value growth in China, Australia, and even Canada, soaring well beyond luxury mainstays like New York and London. On the other end of the spectrum, locations dependent on oil wealth saw some of the most dramatic declines in value, with cities in the Middle East, Russia and oil-producing Africa at the bottom of the list.

The annual report highlighted two key points affecting luxury price growth, wrote Kate Everett-Allen, head of international research at Knight Frank.

"First, local economic activity has a strong bearing on price performance," Ms. Everett-Allen said in the report. The top 10 this year all had gross domestic product growth of more than 3%.  

"And second, economic growth is firmly concentrated in the world’s cities," she added.

London and New York

London and New York, both traditional destinations for the mega-rich, had their challenges in 2016, according to the report.

In the British capital, the vote to leave the European Union sent confidence in the property market there into momentary chaos. But it was a 3% hike in the stamp duty on second homes, introduced in April, that stifled demand. All in all, London’s luxury prices declined 6.3% in 2016—though there’s evidence sales and confidence began to pick back up at the tail end of the year, according to the report.

Across the Atlantic, New York also struggled in 2016, though luxury residential prices still managed to grow 3.5%, placing the city in 22nd place globally.

A strong dollar tempered interest from foreign buyers. And New York’s primary challenge, one felt in other U.S. cities like Miami, was a large number of high-end projects coming online, which inflated supply.

The report echoed some U.S. realtors in their optimism about the potential of President Donald Trump’s planned boost to infrastructure spending.

"With President Trump expected to embark on a program of fiscal stimulus, reduced regulation and infrastructure investment, there is potential for stronger growth in 2017," Ms. Everett-Allen said in the report.

More:Click to Read Which Global Cities’ Housing Markets Will Be Impacted By a Trump Presidency?

The ‘eyebrow raisers’

"There are several outstanding performers that will raise an eyebrow among even the most experienced investors," the report noted.

For instance, three Chinese cities claimed the top rankings in 2016: Shanghai, Beijing and Guangzhou all saw prices jump more than 26% year over year. Their impressive gains, however, are likely to trigger more policies in China meant to reign in overheated property markets. (China has already introduced some cooling measures, including higher deposit rates and restrictions on home buying.)  Home price growth was even more impressive within the non-luxury market, where mainstream prices jumped 30% in China, according to the report.

Newcomer Guangzhou, a port city northwest of Hong Kong, can attribute its rapid growth to starting at a lower base price, the report said. For example, luxury prices in the port city are still half those found in China’s capital of Beijing.

Last year, the star of the report was Vancouver. The Canadian Pacific coastal city landed in the top 10 once again with 14.5% year-over-year growth. This is considerably lower than last year’s 25% price growth, however, a decline due in most part to a new 15% tax on foreign buyers implemented in August.

More:Click to Read Chinese Cities Top World Housing Markets

Europeans sending mixed messages

European cities were all over the board in this year’s report, with Amsterdam ranking No. 8—with 10% price growth—and the northern Italian region of Umbria trailing the world in 94th place after prices fell nearly 8% in 2016.

The report offers some evidence the continent’s prime home markets are recovering, however. In 2015, 65% of the cities with declining home prices were in Europe, and this year that proportion fell to 50%.

Aside from Amsterdam, other top performers in Europe were Gstaad, in Switzerland; Berlin and Barcelona. Vacation hotspots, meanwhile, like Ibiza and Mallorca, in Spain, Western Algarve in Portugal and the celebrity-studded Lake Como region of Italy all improved in the rankings.

Article Continues After Advertisement