Prime Property : US shines as global growth falls

Analysis of the latest trends to emerge from Knight Frank’s Prime International Residential Index suggests a global 2% growth in luxury property value in 2014.

The value of luxury residential property around the world rose by just over 2% on average in 2014, based on the performance of the 100 locations covered by our PIRI rankings.

With reversals in markets as far apart as Asia, the Middle East and Europe, growth was lower than the 2.8% seen in 2013.The US dominates the top of our table, taking four out of the top 10 positions, with New York (+18.8%) and Aspen (+16%) in first and second place respectively.

The disparity with Europe’s cities is stark.

Luxury prices rose by almost 13% on average across US cities last year, compared with an average of only 2.5% in Europe. Bali, the leading Asian second-home market, and the emerging Middle Eastern urban powerhouse of Istanbul were standout performers, with luxury prices up by 15% year on year in both markets.

Our previous front runner, Jakarta, which led the rankings in 2012 and 2013, slipped to 12th place this year, an indication of the luxury market slowdown evident across many Asian cities last year.

Some previously strong markets such as Dubai (17% growth in 2013) saw prices slow markedly (0.3% in 2014).

This is in part because of the mortgage cap of the Central Bank of the UAE, which is stricter for those purchasing properties above five million dirham.The dampening impact of this kind of prudent macro policy also explains the ongoing weak growth in Hong Kong and Singapore.

Government policy has been deliberately aimed at limiting price rises through higher taxation and mortgage market intervention.

Mainland China mirrored this trend with prime price growth in Shanghai (0%), Beijing (-0.5%) and Guangzhou (0.6%) proving lacklustre at best. Buenos Aires proved our weakest performer, but with GDP growth in negative territory in 2014, the city’s housing market tribulations are less than surprising.

New York, New York…

While the threat of Mayor de Blasio’s so-called pied-à-terre tax doesn’t appear to have dampened growth in New York, recent hikes in stamp duty (a purchase tax) have curtailed the rate of price growth for properties worth over £2m in London, holding overall prime price growth at 5.1% for the year.

The latest changes to UK Stamp Duty mean higher costs for those purchasing a property priced at £937,500 or above, this may cap growth above this threshold in the near term.

Despite the more muted performance of the PIRI 100 this year, luxury housing markets continue to outperform their mainstream counterparts.The average price of a luxury home in our index is 38% higher than it was at the index’s lowest point in the second quarter of 2009; the average price of mainstream global property has risen by just 14% over the same period.

Source: US Growth | The Wealth Report