Global prime property records weakest performance since Q2 2009

01 November 2011
Knight Frank has presented the results of Prime Global Cities Index in Q3 2011

International consulting company Knight Frank has presented the latest results of the Prime Global Cities Index, which show that while the prices for luxury properties increased by 4.3% in the year to September 2011, they rose only by 0.5% in the third quarter, which represents the index’s weakest performance since Q2 2009.

Key findings of the research for Q3 2011 are as follows:

  • Prime property prices rose on average by 4.3% in the year to September 2011 across all 21 global cities monitored by the index; this represents the lowest annual growth recorded in two years
  • Asian cities are no longer performing as a homogenous unit, prime property prices rose by 15.1% in Jakarta but fell by 17.9% in Mumbai during the last 12 months
  • Moscow is on the 6th line of the rating with the annual growth rate of 8.5%
  • St Petersburg registered the largest fall in the third quarter, with luxury house prices declining by 11.6% in the 12 months to September
  • Prime property prices increased in 15 of the 21 cities monitored by the index over the last 12 months but only eight cities saw prices rise in the last three months
  • On a regional basis, Europe outperformed Asia, with prime property prices rising on average by 6.7% annually compared to 2.0% respectively

Elena Yurgeneva, Нead of residential sales, Knight Frank Moscow, said: “Despite a slight decline in the prices registered in August and September and associated with the growth of the U.S. dollar against the Russian rouble, the average price per square meter of Moscow prime properties grew by 1.1% by the end of Q3 2011, while the prime re-sales market grew by 1.6% at the same time. Thus, the average growth rate for the whole prime property market of Moscow for Q3 amounted to 1.3%. At the moment, the average price per square meter of elite new builds is still by 5.1% higher than its pre-crisis peak rate reached in September 2008. As we reported earlier, for the first time the average price on the primary market has exceeded the pre-crisis indicators in March 2011 when local developers were inspired by a swift increase in demand and raised prices for almost all of their projects. The negative trend in the stock market and the overall uncertainty of the economic situation are driving to the growth of interest to alternative investments, and namely property investments. At such times, our customers traditionally cut the share of stocks in their portfolios and increase the volume of investments into relatively less volatile assets. Thus, at the moment, the customer activity is very high in all segments of the luxury residential market: for city, country and international properties. We expect the trend to last at least until March 2012”.

Elizabeth Conway, Head of residential sales, Knight Frank St Petersburg, commented: “The Q3 results seen on the prime property market of St. Petersburg are due to several factors including the differences of USD and RUR as well as the continuous washing out of the most affordable new builds stock appearing on the market. Apart from that, the situation at the prime property market of St. Petersburg at the moment is that the most expensive properties are being removed from the market, sometimes temporarily (while there is no data available indicating that they have been sold). This is probably due to the fact that, in the period of an unstable macroeconomic climate and the upcoming second wave of the crisis, the owners have decided to postpone selling their properties”.

Kate Everett-Allen, associate, residential research, Knight Frank (London): “Prime property in the world’s global cities has been tagged a ‘safe haven’ investment by savvyminded investors for the past three years. Against a backdrop of sovereign debt concerns and geo-political uncertainty wealthy investors have sought the stability of luxury property in key cities such as London, Moscow and Hong Kong. There are now clear signs however that luxury property prices around the world are collectively softening for the first time since the global recession hit in 2008/09. Fears concerning unresolved sovereign debt issues both in the Eurozone and US look to be having an impact on buyer confidence. Although the credit crunch and the resulting lending restrictions had a nominal effect on the prime market in 2008/09, issues of affordability have arisen, even among wealthy purchasers and a more cautionary climate is emerging. Despite the current economic gloom, it is important to assess the long-term view and consider the extent to which prime property not only recovered faster from the 2008/09 economic downturn but has recorded some phenomenal price rises in the interim. Prime property prices in London and New York now stand at 37.2% and 25.3% respectively above their recessional lows. But it is Asia that makes the headlines; luxury homes in Hong Kong are now 71.7% higher than at their low point in Q4 2008 while Shanghai and Mumbai have seen growth of 115% and 220% respectively from their markets’ trough to peak. The cooling of the Asian cities’ prime markets is a key contributory factor to the index’s quarterly decline. The near-uniformity of Asian house price growth witnessed over the last two years is now less evident as the pace and effectiveness of government deflationary measures starts to have a varying impact from city to city. Our view is that the prime market will continue to be less exposed to the risks in the global economy than most mainstream housing markets. Luxury homes in prime global cities will, we believe, retain their safe haven reputation, but they will attract fewer speculative investors seeking a short-term gain”.