What will 2018 hold for prime property markets? Following on from our first round of predictions, we asked another set of experts how they felt the cards would fall...
London still an international draw despite stuttering markets
House price indices might suggest that prices in the UK rose in 2017, but this was not true for everyone. Those who had to sell up in central London were left nursing falls of up to 20 per cent compared with what they might have expected in 2016. These, however, are the averages of the 100,000 homes a month that sell — half of homes put up for sale never find a buyer.
A third of homes on the market in London have had their asking price reduced at least once, and the majority of those for sale in the upmarket Mayfair and Belgravia areas have been on the market for more than a year. Once you factor in inflation, half of homes in the UK are worth less today than they were a decade ago, at the start of the financial crisis.
This year, the UK market will continue to function, and buyers and sellers will be able to transact, but we are in a different place to a year ago. Cuts in the stamp duty transaction tax for first-time buyers will lead to higher prices, delaying the inevitable correction that will now probably take place in the first quarter of 2019, just ahead of Brexit.
While I expect the UK, and London in particular, to retain its attractiveness for international buyers, other parts of the globe will continue to compete in 2018. In Europe, both Italy and France will be popular, with Switzerland and Monaco still magnets for the mega-rich — though more and more are prepared to consider renting as an alternative.
In the US, New York will pull in international money, despite a perception that America as a nation is perhaps not what it was. Serious money will still pay for a base in the Caribbean. Singapore is showing signs of becoming dull by international standards, but certain Gulf states, such as Qatar, have started to shine.
In the southern hemisphere, New Zealand remains very popular with those looking for a panic room. It is far enough out of the way if life elsewhere gets tricky, although the government is starting to make it much harder to buy.
Transaction costs, tax and personal complications also mean it is not always safe to reside in some centres. The biggest pulls for any city remain personal safety, stable politics and a good quality of life. London is still attractive for all these reasons, and looks like it will continue to be so.
That said, the top end of the London housing market is overcooked. A decade of rising prices is coming to an end. Houses will again be homes rather than investments, with only the very best in class achieving premium prices. Prices have become unaffordable to many but there are more people who have to sell than there are who must buy, and markets will adjust to compensate — as they always do.
Hold on — 2018 may be a bumpy ride.
Henry Pryor is an independent buying agent
Demand to strengthen as big economies grow in sync
For the first time in a decade, the world’s biggest economies are growing in sync. As a result, demand for well-positioned prime residential real estate is likely to strengthen in 2018. Yet more than ever, the sustainability of price rises warrants a market-by-market analysis. In some markets, such as New York, new supply in 2018 will put downward pressure on rents and prices in an already cooling market.
Credit conditions matter, too. With its currency pegged to the US dollar, Hong Kong, for example, may see price falls as US interest rates rise and limit availability of and access to credit. Prices in London might also continue to weaken, as the city’s property market adjusts to Brexit uncertainty.
There is broader uncertainty that global markets have not accounted for. From threats of trade wars and nuclear conflict to inequality and global warming, 2018 could bring a repricing of risk.
That said, the vitality of global cities and their prime real estate is likely to prevail in the longer run. Location matters more than ever in the age of the internet. The amenities that cities provide and the power of cities to draw talent will flourish as demand and supply grow, underpinning the urban value proposition. In the long run, the twin forces of globalisation and urbanisation remain strong.
Susan Wachter is professor of real estate and finance at the Wharton School and co-director of the Penn Institute for Urban Research at the University of Pennsylvania
Global uncertainties will drive search for havens
A sustained bull market will entice high-net-worth individuals to acquire well-priced high-end residences, particularly in safer locations. That said, buyers and sellers, as well as industry professionals will have to remain flexible on pricing and their expectations under new market realities. This will apply especially once the impact of Brexit on UK prime property and of the still-in-flux US tax bill become clearer.
Smart buyers will ignore political headwinds in some global hub cities and invest in the knowledge that property in those markets, notably London and New York, continues to appreciate with time.
Booming markets will continue to flourish, though at a slower pace than in recent years. Sydney, Toronto, Portland (Oregon) and others have all started to report that the exaggerated expansion trend is over as a result of various local and global factors, including new regulations. These, though, will probably merely slow price rises and the pace of high-end sales, rather than bring them anywhere near a halt. Hong Kong might be the exception, however, with demand for prime and ultra-prime property expected to continue to grow, despite several rounds of government measures to cool the market.
The rarest trophy homes will continue to sell for high sums, when priced correctly, such as the HK$2.8bn ($370m) residence that was sold last year in one of Hong Kong’s finest locations. Demand for ultra-prime homes remains strong, though sophisticated buyers are becoming increasingly selective and are looking for less stratospheric pricing for trophy homes.
Terrorism and natural disasters will lead more ultra-high-net-worth investors to seek out more varied locales for safety and diversity. Upmarket pockets in secondary cities and satellite towns, as well as less prominent second-home enclaves, will win favour. Montreal and its nearby skiing areas, for example, will attract affluent French-speaking global buyers. Political stability and prices still below their peak will also entice some wealthy second-home buyers in Spain to Valencia in preference to Catalonia.
The sharing economy will gain prominence in affluent urban communities. As escalating prices and land shortages shrink apartment sizes, shared spaces and amenities will become increasing relevant for wealthy millennials in powerhouses such as New York, London and Hong Kong. Access to shared amenities in apartment blocks, such as wine cellars, connected work areas and large-scale entertaining spaces, will be a priority for many younger buyers.
Dan Conn is chief executive of Christie’s International Real Estate
Pockets of strength remain as global boom falters
The uncertainty in Europe caused by Brexit, political unease in the US and a weak economy in China made 2017, as we predicted, a challenging year for the global property market. However, the fall in the pound brought an influx of overseas investment into UK residential property, as prices suddenly fell up to 20 per cent for foreign buyers. This generated enthusiasm among Chinese investors in particular, who recognised the UK market as the haven it had always been, only cheaper.
As 2018 begins, the global housing boom appears to be losing momentum. Most of the Middle East, Latin America, New Zealand and some parts of Asia are experiencing price falls or at least a deceleration in price rises. Europe, Hong Kong and Canada, on the other hand, continue to experience strong price rises.
The pound and the dollar are both predicted to weaken in 2018, which may throw up some property bargains in these countries, as well as others pegged to the dollar.
In the UK, we expect the government’s attempts to deter international investors to have little impact. Meanwhile, the launch of the Crossrail east-west rail link at the end of the year should bring significant price increases in areas close to stations. Commuter hotspots south and west of the capital such as Surrey and Berkshire should also continue to be sought after.
Robin Paterson is joint chairman and chief executive of Sotheby’s International Realty UK
Photographs: Getty Images/iStockphoto; Alamy