PETALING JAYA: According to Knight Frank’s prime global forecast for the fourth quarter of 2013, the report predicted that opportunities in 2014 will be focused more locally, than at the macro level previously.
Rising interest rates and government intervention in the form of buyer restrictions now pose the greatest threat to luxury residential markets worldwide.
Dubai leads the forecast for the largest growth of between 10% and 15%. This is followed by Beijing, Shanghai, Sydney and Paris (5% to 10% growth). At the other end of the spectrum, Hong Kong will see the largest price decline of 5% to 10%
“Although the global response to the financial crisis has helped boost the prime global residential markets, the unwinding of stimulus poses some challenges,” said Knight Frank global head of residential research Liam Bailey.
He said the improving local economies and the search for regional safe havens are considered the best means of boosting investment and driving inward capital flows.
Price growth will continue in prime central London in 2014. However, the growth is likely to stall in 2015 due to market uncertainty in the run-up to the UK general election. The recent introduction of capital gains tax for non-resident buyers is not expected to influence demand or pricing significantly.
In New York, demand for the prime market is strengthening but so too is supply. Much of the new condo development is priced for the luxury market.
Overall, luxury prices are expected to stay largely flat due to expanding supply and some vendors pricing themselves out of the market. Activity in the luxury sector will be strongest in the midtown market in 2014 and demand from international buyers will remain at high levels.
Newly elected New York City Mayor Bill de Blasio, who will begin his term in 2014, is not as pro-real estate as his predecessor Michael Bloomberg. However, it is not clear what the new mayor’s ultimate policy stance will be.
Prime residential prices in Hong Kong will fall in 2014. Increased supply and the continuation of stringent cooling measures will affect the luxury end of the market.
“Supply in 2014 will focus on the New Territories, in particularly Tai Po, Tseung Kwan O and Yuen Long,” said Bailey, adding that the market has turned and entered a downward phase. Residential prices will decline in the coming few years, but significant corrections are not expected amid a low mortgage rate environment.
In China, current policies are temporarily suppressing demand by restricting home prices and purchases, but Knight Frank expects the central government to tackle the bubble problem by introducing more long-term mechanisms, such as implementing a property tax, increasing land supply or regulating bank loan policies.
Bailey said cash-rich developers are expected to continue to acquire land in the core areas of China’s first and second-tier cities at a fast rate in 2014.
Due to the existing cooling measures in Singapore, prices in the high-end private residential market will decline 1% to 2% in the first half of next year.
However, the lower prices may lead to strengthening demand in the second half, with prime residential properties in popular areas such as Districts 9 and 10 generating greater interest. In the long run, Singapore continues to be one of the favoured choices for property investment among high net worth individuals.
Prime prices in Paris are similar to the level five years ago. However, an increasing number of foreign buyers are seeing value in the market.
“We anticipate a softening of President Hollande’s political rhetoric in 2014 and a gradual recovery in market confidence,” said Bailey.
The combination of low interest rates, stable economy, demand from foreign buyers — particularly from Southeast Asia — and positive investor sentiment is driving demand for prime residential property in Sydney.
Due to foreign ownership restrictions, foreign buyers tend to focus on purchasing new builds in Australia rather than established properties. As a result, developers are trying to fast-track new projects to take advantage of the current strong market.
Knight Frank expects luxury prices to stabilise in Geneva in 2014 as buyer confidence improves on the back of more upbeat global economic indicators and a less critical debt situation in the eurozone.
Concerns over the potential vote on the lump sum form of taxation, the final interpretation of the Lex Weber ruling and the vote on maximum pay in Switzerland have the potential to curtail the strength of the recovery.
In the last quarter of 2013, Dubai sees a doubling in the transfer fee and mortgage caps for expatriates and nationals.
Although there are signs that transaction volumes have fallen back since the introduction of these measures, price growth is expected to pick up again in the early part of 2014.
The Knight Frank forecast assesses the key events and trends that will influence luxury residential markets in key cities around the world in 2014, and reviews the main risks and opportunities that four of the world’s key luxury residential markets will face. — by Wong Mei Kay
This article first appeared in The Edge Financial Daily, on December 27, 2013.
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