The slowdown seen across the world’s leading prime city housing markets during the second half of 2018 continued into 2019. The Savills World Cities Prime Residential Index rose by 0.4% in the first half of 2019, taking annual growth to 0.7%. This compares with an annual increase of 5.1% in the year to June 2018.
However, there are exceptions. The stand-out growth for prime residential property over the past year has been in Berlin and Paris, which have recorded a rise of approximately 8% each. Both markets have benefited from low supply levels and increasing demand from international and domestic buyers.
The six months to June 2019 marked a turning point for a number of Chinese cities as prices increased following falls during the second half of 2018. This follows a slight loosening of housing restrictions as the economy slows in response to internal and external factors.
A similar trend was seen in Moscow, as prices increased 1.2% in the first half of 2019 following years of price falls as Russian money returns to the capital.
In Kuala Lumpur and Bangkok, prime prices rose by nearly 2.5% in the first half of 2019, benefiting from international investment as prices are relatively low on the global stage.
New York, London, Sydney
Conversely, many US cities have seen prices fall over the first six months of 2019. Here, demand has been impacted by tax changes. The amount of state and local taxes that homeowners can deduct has been capped and the mortgage interest deduction was reduced from US$1 million to US$750,000 in mortgage debt. Additionally, in the case of New York and Miami, there are high levels of new build supply in the prime residential sector.
The impact of Brexit is still being felt in London, although the market is showing signs of levelling out as prices recorded their smallest fall since June 2014 as a shortage of stock in some markets is helping fuel demand.
The opposite is true in Sydney, as price falls accelerate following a change in mortgage regulations and increased taxes and restriction for international buyers.
Outlook
There are a number of reasons why the prime residential markets in global cities are going through a slowdown. Government policies, the cost of money, increased supply and global economic uncertainty have all contributed. Despite these headwinds, we do not except significant price falls across the Index, but that growth will remain flat or experience small increases in value over the medium term.
Prime residential values are underpinned by a fundamental gap in supply and demand. Land is often limited in global cities so demand in these desirable cities outstrips supply. It is expected that high net worth individuals will continue to want to hold one or more world city prime residential properties as part of their portfolio, both as a store of wealth and as a base for work and leisure.
Over the short term, we expect European cities to continue to outperform as they benefit from Brexit and comparatively lower prices. Over the longer term, wealth generation will be critical to the growth of each city’s prime residential market, along with political and economic stability and favourable demographics.
