Sydney has been a top performer in terms of global city prime real estate price growth and is expected to outperform many other cities in 2016 but at a slower pace.
The pace of price growth in the Australian city is expected to slow from 15% year on year in 2015 to 10% in 2016, according to the latest Prime Cities Forecast report from international real estate firm Knight Frank.
It points out that Australia’s economic slowdown, weaker stock market performance in recent months and the introduction of foreign investment fees explain the projected lower rate of growth in 2016.
Of the 10 cities analysed in the forecast, only London, Paris, Geneva and Singapore are forecast to see stronger price growth or a slower rate of decline in 2016 than in 2015.
Overall, prime prices across all 10 cities are, on average, expected to have increased by approximately 3% in 2015 but average annual growth is forecast to slip to 1.7% in 2016.
‘This confirms our view that lower returns will become the norm in the short to medium term,’ said Liam Bailey, global head of residential research at Knight Frank.
Of the cities analysed, Hong Kong is forecast to overtake Singapore as the weakest performing luxury residential market in 2016. New supply coupled with a strengthening HK Dollar, pegged to the US Dollar, will see prime prices soften.
The price decline seen in Singapore’s prime residential market is expected to persist at least until the end of 2016 following the government’s assertion that it has no plans to relax its property market cooling measures.
However, the drop in price of luxury properties has presented pockets of investment opportunities. ‘We expect sale volumes to increase in 2016 and, due to the shrinking inventory of high end homes, price falls within the prime sector will be less pronounced than those across the island as a whole,’ said Bailey.
London’s upturn is expected to be marginal, from 1% in 2015 to 2% in 2016. Higher transaction costs, including a 3% increase in stamp duty for buy let properties and second homes, political risk around the Mayoral election in May, and ongoing affordability concerns explain the muted forecast.
The report also suggests that the recent terrorist attacks in Paris will undoubtedly affect buyer sentiment and will mean some buyers delay investments. With a Presidential Election less than 18 months away, however, the firm does not expect any radical shake up to the tax structure for foreign buyers and the city remains competitively priced compared to other top global cities.
In the current climate of heightened political tension and ongoing tax fluctuations, Monaco’s status as a private and secure retreat continues to appeal to the worlds wealthy, the report says. With supply severely constrained on the two mile wide principality it forecasts steady price growth of 5% in 2016 as demand and sales activity picks up.
The Geneva market, along with Switzerland as a whole, has been characterised by uncertainty in recent years. However, with the lump sum form of taxation now protected, a strong currency in place, the detail surrounding Lex Weber becoming clearer, and potential improvements to corporation tax in 2016, Knight Frank expects enquiries from those seeking greater fiscal security to strengthen.
It also points out that the high stock levels will keep prices from rising over the next 12 to 18 months, hence a forecast of 0% growth in 2016, but more stable trading conditions seem likely in 2016 and beyond.
In 2015, the demand for New York’s luxury homes cooled from the frenetic pace observed in 2013 and 2014 due to the strength of US dollar and weaker economic conditions worldwide, although it is not expected to impact price trends until 2017.
With the US federal and presidential elections due in November 2016 both New York and Miami are likely to see buyers adopt a wait and see approach. In Miami’s case, the performance of the dollar against key South American currencies and the euro will influence demand/capital flows.