World city luxury home price growth slowing, latest index shows

Prime property price growth in key cities around the world slowed in the second half of 2018 to just 0.4% but overall increased by 2.3% across 2018, the latest international index shows.

The strongest growth was 9% in Berlin, followed by 7.9% in Shanghai, 7.7% in Singapore, 7.3% in Hong Kong, 6.9% in San Francisco, 5.7% in Tokyo and 4.8% in Shenzhen, according to the data from the world cities index from international real estate firm Savills.

The steepest fall in prime prices in 2018 was a decline of 6% in Dubai, followed by a fall of 4.6% in Moscow and a fall of 4.3% in New York, while prices fell by 2.7% in London, and by 1.7% in both Sydney and Beijing.
Hong Kong remains world’s most expensive city, with prices up 199% in past 10 years and London has slipped from second to fourth most expensive world city over past five years to look relative value on the world stage.

The index appears to be hitting a high plateau, recording its smallest annual rise since the global financial crisis. Among cities that continued to see prime residential values rise throughout 2018, only Paris saw the pace of price growth increase between July and December.

At the same time, across the cities where values fell last year, there is evidence of markets bottoming out. The rate of price falls slowed in the second half of the year, pointing to a future steadier growth trend.

Only New York saw steeper falls in the second half of the year than in the first, as a surplus of new high end developments suppressed prices across the market, while in Dubai falls continued to fall at a steady rate across the year.

Rental growth also slowed across the index, leaving average world city yields for prime residential assets at a 10 year low of just 3.2%.

‘Prime residential real estate values are settling into a pattern of slower, steadier price growth and we do not expect to see a repeat of the double digit annual price growth seen pre GFC,’ said Sophie Chick, director of Savills world research.

‘But while growth is now expected to slow, we expect values to be underpinned by a search for security of tenure and title in cities where the world’s high net worth individuals wish to live and do business,’ she added.

The figures also show that with growth of 4.5% in Paris and 4.3% in Madrid, both cities continued to see growth in contrast to London which slipped 2.7%. While cities in Asia Pacific are seeing the strongest growth, the analysis points out that in cities such as Shanghai, Singapore, Hong Kong, Tokyo and Shenzhen growth slowed dramatically over the year as cooling measures came into effect.

Hong Kong remains in a league of its own pricewise, having dominated the index over the past 10 years. Average prime residential values now stand at £3,650 per square foot, some 50% higher than second ranked Tokyo at £2,430 while in New York it is £2,060 and London £1,470.

‘Without doubt, the world’s wealthy will continue to want to hold one or more world city prime residential properties as part of their investment portfolio, both as a store of wealth and as a base for work and leisure,’ said Chick.

‘But as cities reach maturity on the world stage there will be less potential for rocket fuelled price growth and we expect prime residential markets to settle a more steady growth trend over the foreseeable future,’ she explained.

‘There will be exceptions as new global cities emerge or economic conditions improve. In the short term, it’s the European cities that are likely to see the highest rates of price growth, benefitting from Brexit, lower prices and renewed confidence in markets like Spain,’ she added.