Index reveals global property market slowdown

The global residential real estate market has weakened further as research reveals that prices fell or slid in half of all countries in the first three months of 2011 and the slowdown is expected to continue followed by growth again in 2012.

Property prices increased by only 1.8% in the year to March, the lowest annual rate of growth recorded since the end of 2009, according to the latest Knight Frank Global House Price Index.
Prices in 25 of the 50 countries included in the index remained flat or saw negative growth in the first three months of 2011, compared to only 18 countries a year earlier.
In regional terms, Asia remains the top performing continent, recording 8.4% growth over the last 12 months. However, this is down from 17.8% a year earlier. The weakest region was North America which saw a fall of 0.4% in values in the year.

While house prices in Europe were static in the first quarter, this represents an improvement on 12 months earlier when house prices on average had fallen 4.1% in the preceding 12 months, the index also shows.

The strongest performing countries were: Hong Kong, up 24.2%, where the government is fighting to pull inflationary pressures under control; India up 21.9%, and Taiwan, up 14.3%.

Liam Bailey, head of residential research at Knight Frank, said that the figures point to ongoing problems underlying the world’s housing markets. In the fourth quarter of 2010 overall annual price growth stood at 3.3%. Three months later this shrank to 1.8%.

‘A cursory glance at the results table would suggest its business as normal, with Asian countries firmly implanted at the top of the table and both Europe and North America languishing behind. But there are a few less predictable results,’ he said.

‘House prices in Russia, for example, fell 13.7% in the first three months of this year positioning it below Ireland in the rankings. On the other hand, France has jumped to sixth place in the rankings, up from 30th a year earlier. Sweden and Germany, by comparison, have experienced several quarters of positive growth only to fall back in the first quarter of 2011. In most of these cases, with the notable exception of Germany, the housing market is reflecting the wider economy’s performance as well as responding to domestic policy decisions,’ explained Bailey.

He pointed out that in Russia the Government’s mass affordable housing programme is boosting supply and lowering the average prices throughout the country, despite the average price growing in Moscow and Saint Petersburg. House prices in France look to be mirroring the country’s improving economic scenario where GDP increased by 1% in the first quarter, its highest quarterly rise since 2006.

Greater productivity is impacting on wages, consumer spending is up and likewise property demand.
‘Globally, the slowdown in annual price growth to 1.8% is largely attributable to the poor performance in the first three months of this year. In the first three months some 50% of countries saw flat or negative growth. A year earlier this applied to only 38% of countries included within the index,’ Bailey added.

He also reckons that the efforts on the part of Asian governments to cool house price inflation in the past year have been largely successful, although the latest figures suggest Hong Kong’s housing market is proving less responsive. Demand from mainland China is a key driver, accounting for nearly one in four Hong Kong property purchases. The Chinese market by comparison has seen annual price growth fall from 49% a year ago to a more sustainable 8.4%.

In Europe, Portugal, Ireland, Greece and Spain are displaying a mixed picture. Spain is still struggling with a significant fall of 2.5% in the last quarter, although this poor performance is overshadowed by Ireland’s 4.5% decline over the same period. Greece and Portugal are showing signs of improvement with prices rising in the last quarter, which is surprising given their economic backdrop.

The Middle East provides an improving picture. Dubai has seen price growth regain positive territory in the last six months and the consensus is that the market is stabilising following the volatility observed in 2008/2010.
‘While many housing market experts consider the US to represent the greatest risk to the stability of global housing markets, our view is that Asia still poses something of a threat. There is still a potential in China, Taiwan and in Hong Kong for their housing markets to become overheated and bubbles to appear once more, if government intervention proves insufficient,’ said Bailey.

‘In summary we expect to see the current slowdown in global housing markets to continue, hitting a low point in the fourth quarter of 2011, assuming the Asian markets continue to cool and the government intervention is successful, but with a slow recovery in global house prices taking place in 2012,’ added Bailey.