Prime properties in Dubai expected to lead global price growth in 2014

Prime properties in Dubai are forecast to see the largest price growth in 2014, according to Knight Frank’s latest Prime Global property forecast.

Homes in the emirate are expected to rise by between 10% and 15% next year despite the introduction of new measures designed to curb rising property prices.

Price growth in Beijing, Shanghai, Sydney and Paris is forecast to be between 5% and 10% in 2014, while in London prime property prices are expected to rise by less than 5% over the next 12 months.

The report says that in Singapore and Hong Kong, the recovery has been very strong, with several years of positive price growth. While most of Europe has struggled, this is by no means the whole story. Austrian and German prime city markets have seen their strongest growth for decades, and markets like Munich are seen by investors as part of this safe haven grouping, it points out.

Overall in Asia the volume of cheap money has been such that governments have begun intervening in property markets. The weight of money leaving China, and landing in markets like Hong Kong and Singapore has led to a political reaction.

If you are a non-resident and you want to buy in Hong Kong or Singapore, you are facing significantly increased levels of stamp duty. Within China, maximum loan to value rates have been capped in key cities. Even in London, stamp duty has been raised in the past two years.

‘The reality is, in many cases the changes to property taxation, is more a case of bringing benign rules into line with global norms, which is certainly the case in London. Also these rule changes are generally not a one way street. With interest rates potentially rising in 2014, and markets in Hong Kong and Singapore already slowing, there is a real chance that some cooling measures could be lifted next year,’ the report explains.

Similarly in Europe, the French President Francois Hollande is beginning to row back on some of his interventions, for example he is easing some rules around Capital Gains Tax exemption for non-residents.

The report says that it is unlikely that the key global markets will be closed for investors. However, it points out that aside from political issues, there are a number of further considerations for investors.

‘The Eurozone crisis is subdued, but has not been solved. Interestingly, the crisis phase for the Eurozone in 2010 and 2011, while having a negative impact on the global economy, led to considerable demand for prime property,’ it says.

‘In a similar vein, geopolitical risks are rising, in the Middle East, but also now in the South China Sea. There is no doubt that these have the potential to hit global economic growth, but once again they have the potential to increase the demand for safe haven assets,’ it points out.

‘Probably, the biggest issue to watch is the unwinding of quantitative easing. There is no question that asset pricing will come under pressure. But the question is essentially down to timing. If this happens quickly the property market would see values and sales volumes come under pressure. But there is significant pressure on governments to extend the unwinding period, to ensure that economic growth and income growth can support prices,’ it adds.

The report also suggests that investors have to consider these risks when making their investment decisions. However they also need to weigh opportunities for growth against these potential downside scenarios and risks.

For example the on going growth of global wealth will see an additional 4,500 people with at least $30 million to invest every year, joining the ranks of the super wealthy and these newly wealthy individuals will want to invest some of their wealth in prime property.

‘The relationship between prime residential markets and economic policy has become ever more entwined. The financial crisis led to policy responses which inflated prime property markets. As a result, attempts to manage prime markets have become more overtly political,’ the report says.

‘While the unwinding of quantitative easing poses short to medium term risks, in the longer term it should reduce the need for cooling measures in property markets,’ it adds.