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Many global property markets still recovering from three year real estate downturn, reports shows

Three years into the global housing market downturn prices were still falling last year in three quarters of the locations featured in Knight Frank’s Prime International Residential Index.
China is the clear top performer according to the index. In Shanghai prices rose by over 50% last year with Beijing close behind. ‘Local commentators are convinced that price growth at this rate is not necessarily a bubble in the making and pointing to some pretty compelling market fundamentals,’ said Liam Bailey, head of residential research.
Over the past 12 months there have been some remarkable performances, the report says. Hong Kong, which was the worst market in 2008, is now the third best, moving from 55 to three. Singapore and London have also performed well moving from 51 to five and from 53 to nine, respectively.
‘When prices fall, demand is quick to re-establish itself with buyers and investors looking to capitalise on the better value offered. At the same time supply becomes constrained as development schemes are put on hold during the initial stages of the market downturn,’ explained Bailey.
Outside the key growth markets prices have continued to fall. In last year’s report some 41% of the prime markets saw annual price falls but in 2009 it was 73%. The steepest price drops were in Dubai, down 45%, the Western Algarve at 30% and Dublin at 25%. While Barbados saw price falls of 20%, the steepest in the Caribbean, and even some locations in Asia saw falls although small compared with elsewhere, most significantly Kuala Lumpur with a 1.8% fall.
The vast majority of price falls took place in the first half, if not the first quarter of the year. In New York, for example, prices fell more than 12% in 2009, but actually rose by 2% in the final six months of the year. Markets recovered on the back of improved confidence and the return of global economic growth, the report points out.
Location was also a factor in where prices crashed most. Coastal and country second home locations saw prices fall by 14% and 11.9%, respectively. European ski resorts were slightly more resilient, falling by 12%. But prime city locations were much healthier, posting an average rise of 0.4% over the year.
There is a degree of concern around the speed and strength of the turnaround, it also says. ‘Rock bottom interest rates and the creation of money via government stimulus packages have led to an injection of liquidity into the world economy, which has found, inevitably, its way into asset markets, including property, gold and shares,’ he explained.
‘Low interest costs have protected potentially distressed owners and reduced the supply of property for sale. At the same time, low savings rates have encouraged the wealthy to move investments out of cash and into property in the search for acceptable yields. This has driven demand for property higher and, set against tight supply, has served to push values upwards in many locations,’ he added.
Looking ahead Bailey says the main issue for 2010 is how secure the renewed bounce in pricing is in the top performing markets. ‘Our view is that most prime markets are suffering from an undersupply of stock and this will help maintain prices in the short term. Looking further ahead, however, it is those locations that offer a genuine lifestyle attraction to the world’s wealthy, rather than just an investment opportunity, that will prove most sustainable,’ he said.