2010 Wealth Report: Prime Property Back on the Menu

2010 Wealth Report: Prime Property Back on the Menu

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Knight Frank, in conjunction with Citibank has just released its 2010 Wealth Report. The 25 page PDF document confirms what we have already pieced together from multiple reports as 2009 progressed from the first quart throughout the second half:

Prime property — which suffered last at the hands of the financial crisis, but suffered just as hard –experienced a rebound in many locations in 2009, while many more (71% according to the report) locations continued to suffer.

Those markets that experienced a rebound is like a list of the world’s top city’s. According to the report, of the 56 cities researched, 15 a growth in prime residential real estate values, while 41 experienced a contraction. The cities which experienced growth are below:

Above 40%
Shanghai 52%
Beijing 47%
Hong Kong 40.5%
Between 10% and 20%
Johannesburg 17%
Singapore 17%
Jakarta 14%
Mumbai 11%
Rio de Janeiro 10%
Between 0% and 9%
London 6.1%
Washington DC 5.6%
Sao Paulo 5.6%
Bangkok 4.6%
Cape Town 4.3%
Home Counties (UK) 1.4%
Zurich 0.0%

Rather than list the 41 countries that contracted, I will list the 10 that saw the biggest contractions (Chamonix added as 11 because it had same contraction as previous 2):

Dubai 45%
Western Algarve 30%
Dublin 25%
Palma 22%
Barbados 20%
Dordogne 19.5%
Bordeaux 18.1%
Florence 18%
Mallorca 17%
Gascony 17%
Chamonix 17%

Liam Bailey, Knight Frank’s head of residential research explained very succinctly why some of the markets in recovery have experienced such a rapid and concentrated reversal of fortunes in their prime property sectors.

“When [prime property] prices fall, demand is quick to re-establish itself with buyers and investors looking to capitalise on the better value offered. At the same time supply becomes constrained as development schemes are put on hold during the initial stages of the market downturn.”

In reality though, the financial crisis created a perfect storm for prime property price rises, as various factors converged to cause increasing demand and sales:

Firstly, you have the fact that those people wealthy enough to buy prime property around the world, were mostly unaffected by the global downturn.

When prime property prices fell drastically and then hit a floor, these properties presented excellent investment opportunities, owing to the track record prime property holds for growing more rapidly in good times than anything else. Rents also fell slower than prices thus increasing rental yields. Thus, wealthy investors started buying prime properties at bargain prices.

At the same time, you have the fact that banks are collapsing and previously strong currencies like the pound are devaluing like crazy, this made the wealthy want to put their cash into something safer, gold was a big beneficiary of this, but prime property wasn’t far behind.

More recently, prices rising has undoubtedly taken some of the bargain-hunters away, luckily inflation fears threatening further currency devaluation, and the potential for whole countries to go bankrupt (Greece) added to the above-described fears, and intensified the desire to have any cash savings in property.

With the financial futures of Europe, the UK and even the US still far from certain, it makes sense to predict that 2010 will be another strong year for prime property.