Chinese cities dominated price growth at end of 2016, but unlikely to continue to do so

House prices across 150 cities worldwide increased by 6.6% on average in 2016 with Chinese cities dominating the year on year growth taking the top nine places, the latest index shows.

Nanjing leads the rankings with average prices ending last year 41.1% higher. Chinese cities would have occupied the entire top 10 had Wellington in New Zealand not nudged Shenzhen out of tenth spot.

But the index report from international real estate firm Knight Frank warns that while Chinese cities dominated in the fourth quarter of 2016 this is unlikely to continue into the first quarter of 2017 and it expect the next quarter’s results to look significantly different.

‘The index covers the period to the end of 2016 but already in March we have seen a new round of lending curbs and purchase restrictions across China’s main cities which has brought price growth in several cities to an abrupt halt,’ said Kate Everett-Allen, head of international residential research at Knight Frank.

Overall the index increased by 6.6% in 2016, its highest rate in three years. However, without the Chinese cities the index would have increased by only 4.9% in 2016.

Beyond China, the cities of Auckland with growth of 12.4% and Vancouver up 17%, which have for several years been New Zealand and Canada’s top residential market performers have now been usurped by their respective rivals, Wellington with growth of 23.7% and Toronto at 19.8%.

One reason for the change is that Vancouver has seen a new tax on foreign buyers the report suggests that property investors are also keen to spread risk, with some equity rich Aucklanders now looking for a foothold in the New Zealand capital too.

Oslo, with growth of 21.7%, is Europe’s strongest performing, followed by Budapest with annual rise of 19%. The report says that in Oslo falling unemployment, record low interest rates and strong purchasing power has boosted demand.

The Dutch cities of Amsterdam, Utrecht and Rotterdam represent another centre of growth in Europe, all recording double digit annual price rises and Knight Frank says that a lack of supply is the key determinant of accelerating prices.

With growth of 10.8% Seattle continues to lead the growth in cities in the United States, followed by Denver, up 8.9%. The report explains that the impact of the Federal Reserve’s third rate rise in 10 years to 1% will filter into next quarter’s index. ‘But we do not envisage a sudden slowdown in US cities’ price inflation. Furthermore, we may see stronger capital outflows from the US to key European and Asian cities,’ said Everett-Allen.

In the UK, six of the eight cities tracked by the index recorded positive price growth, but only Bristol with growth of 10.1% saw prices reach double figures. Improving economic productivity and a structural undersupply of new housing is supporting price growth in a number of the UK’s regional cities, the report adds.
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The foot of the rankings table remains largely unchanged with Moscow, Aberdeen, Seville, Darwin and Jaipur jostling for position within the bottom five. No single world region dominates, although the Americas are notable by their absence.

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