Economic uncertainty hits luxury house prices in key global cities

Luxury homes in some of the world’s top cities saw a slowdown in price growth in the last quarter as new taxes, elections, referendums and economic jitters took hold.

Despite an average annual growth rate of 3.8%, 18 of the 37 cities tracked by our index saw their rate of price growth slide compared with last quarter.

Among them were Vancouver, Toronto, London, Sydney and Melbourne; all cities where new taxes have been imposed in the last 12 months; either in the form of higher stamp duty, additional taxes for foreign buyers or the closing of tax loop holes for non-residents.

Vancouver continues to lead the annual rankings but looks set to surrender the top spot next quarter having recorded quarterly price growth of only 1.5% in the three months to September. This compares with a quarterly average of 8.1% recorded in the last four quarters. A new 15% tax for foreign buyers and talk of a further tax on vacant homes in 2017 is slowing sales.

Elections and referendums tend to provoke a ‘wait-and-see’ approach in the minds of buyers evidenced in the run-up to the UK’s Brexit vote in June and the forthcoming US presidential election.

Prime prices in London declined by 2.1% in the year to September. Stamp duty remains a decidedly bigger influence on the prime London market than the EU referendum and in some instances the uncertainty surrounding Brexit has been a catalyst for overdue price reductions.

The average price of a Manhattan apartment exceeded the US$2m threshold earlier in 2016 and although sales activity has moderated, luxury prices in New York are proving resilient.

Chinese cities such as Shanghai (23.4%), Guangzhou (14.3%) and Beijing (7.1%), dominate our top ten rankings for annual price growth but local governments have enacted a range of measures this month to cool demand suggesting a more muted outlook.

Hong Kong, where luxury residential prices are 4.7% below their Q2 2015 peak, has halted its decline with prices rising by 4.1% in the three months to September. Strong demand has led to a recent upturn in sales.

Dublin (5.5%) is Europe’s strongest performer and Paris (-3.8%) the continent’s weakest. Still reeling from the UK’s Brexit decision, but for the most part propped up by QE and a negative interest rate, Europe is second only to Russia and the CIS as the world’s weakest-performing world region.

Currency movements will be the single largest determinant of international demand in the world’s top cities over the next 6 to 12 months. Investors are increasingly looking to the US as their safe haven of choice as the world economy stutters, but a strong dollar will have repercussions globally.

Read the Prime Global Cities Index in full to view the full city rankings

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