According to Wealth-X, a data company that assembles a global index of prime properties in association with estate agents Warburg Realty and Barnes International Realty, the index dropped in 2016 for the first time in five years, ending a surge in high-end property values that began after the financial crisis.
What changed? As the prime property market has become more globalised, the price of a Georgian home in central London, an apartment on Hong Kong’s Peak or a Manhattan penthouse has become increasingly linked to the health of the worldwide economy. Thus, strains on emerging markets such as Brazil and Russia, and market turmoil in China, have cut into buyers’ confidence that they can afford high-end homes.
But there are specific factors too. Sanctions on Russia have limited the flow of outbound capital; wealthy Russians and their counterparts in other oil-producing countries have also been hit by low commodity prices. Brexit, meanwhile, has led to questions about the future of London and potential changes to the UK’s visa regime, especially for buyers from the EU. The populist ascendancy of Donald Trump in the US has led to fears of greater hostility towards foreign purchasers of property. China is imposing stricter controls on outbound capital, which may dampen purchases by Chinese buyers.
Another factor is tax; faced with overheating property markets and priced-out populations, cities from London to Vancouver have closed tax loopholes and added surcharges for some investor-buyers. In London, average prices per square foot for homes costing over £5m are now down 15 per cent from their 2014 peak, according to LonRes.
This is good news for those aspiring to become owners of high-end real estate; less so for those who already are — although they can, of course, take comfort from owning amazing places to live. Still, while the global index fell by 2.45 per cent in 2016, it remains 10 per cent above its level five years ago. The longer-term trend is hard to read; an oversupply of new apartments may, in several markets such as London, New York and Singapore, take time to resolve, according to Warburg & Barnes.
For those in search of a hard-headed investment case, some less high-profile locations may appeal. A separate report from Christie’s International Real Estate says high-end markets are rebounding in cities such as Dublin and Detroit, Atlanta and Valencia. Adventurous investors may wish to take note.
See Hugo Greenhalgh’s report on the Alpha Cities Index