Brakes go on for global prime property prices

Brakes go on for global prime property prices

The latest movements in interest rates worldwide and the global economy are starting to take effect on global prime property prices. According to the latest quarterly index, the solid upward trend seen since the beginning of 2021 has slowed. However, current figures merely indicate slower growth rather than falling prices.

Slower annual growth 

The Knight Frank Prime Global Cities Index for Q2 this year reports that real estate prices at the higher end of the market rose by 7.5% between April and June. The latest figure shows a continuation of price increases, but at a lower rate than Q1. 

In the first three months of 2022, global prime property prices went up by 7.5%. The uptick is the lowest for the past five quarters and down 2.5% on Q1. 

However, despite the change in trend, Knight Frank analysts point out that the lower figure translates to slower price growth and not necessarily to falling prices. In fact, only 6 cities out of the total 45 in the Index experienced price drops, underlining the analysts’ impression. 

Dubai and North America lead 

Dubai stands out on the leaderboard for price growth over the last 12 months. Values in the UAE city rose by 64.8% in the year to June, well ahead of Miami in second place. In the Florida city, real estate prices went up by 37.3% in the year. 

Two California cities, Los Angeles and San Francisco, took third and fourth places in terms of annual growth. Homes in LA saw a 23.4% rise in prices while those in San Francisco went up by 22.2%. 

But when it comes to quarterly growth, the tables turn. Dubai real estate experienced a 0.6% drop in value between April and June. However, properties in Miami, Los Angeles and San Francisco continued on their upward trajectory with upticks of 11.8%, 7.2% and 8.5%, respectively. 

Annual price drops

In annual terms, global prime property prices fell in just six cities. While the drops in Kuala Lumpur and Manila were negligible, those in Frankfurt and Wellington were significant. Wellington properties saw the highest fall with an 8.1% decrease in value. Frankfurt had a 5.1% drop. 

Quarterly price decreases were more commonplace with 42% of the cities on the Index showing negative gain. New Zealand took the hardest hit in quarter-on-quarter terms too with a 6.8% decrease in Wellington and an even higher 9% in Auckland. 

Stockholm, Tokyo and Frankfurt completed the top five and prime real estate in all of them experienced a fall in value of over 4%. 

Reasons behind the slowdown

Knight Frank attributes the latest figures to two main factors: the rise in mortgage interest rates in many leading economies and the latest downturn in the forecast for global economic growth. 

Mortgage rates have risen sharply in the US this year and in Europe, the Euribor has entered positive territory after more than a decade at below zero. However, analysts believe that global prime property will be less affected. “The slowdown will be felt most in lower price brackets and domestic-driven markets,” said Knight Frank.

(Source: Knight Frank)