Global Credit Crunch – Prime International Residential Index Q2 2008

Knight Frank Prime International Residential Index Q2 2008

Key highlights

• The prime residential market is weakening across the world – due to the fallout from the credit crunch and declining economic conditions in western markets.
• The super-prime market is increasingly divorced from the wider market – with strong performance seen in London, New York, LA and other top-end markets.
• The top tier of global prime property is represented by Monaco, the central London and New York markets and the best French sunbelt (Cote d’Azur) and snowbelt (Courchevel) markets.
• Prime markets in the emerging world appeared sheltered in 2007, now there is a growing risk of oversupply together with potential price bubbles in Asian markets.
• Wealthy buyers from Russia are influencing pricing and demand for London and the French and Italian Alps. Their counterparts from India are increasingly influential in Europe and the US, whereas wealthy Chinese buyers remain focused on Asian markets.

Liam Bailey, head of residential research, Knight Frank, commented:

“Monaco and London both vie for the top spot in the global housing market stakes. With the prime market in London taking a hit from the credit crunch fallout, London has now slipped into the second position, with prices for the best properties averaging £3,290 psf, compared with £3,760 psf in Monaco. However, these averages hide the fact that prices in both locations have broken records in recent months, with the £5,000, £6,000 and even £7,000 psf barriers surpassed by new build and refurbished properties.

“Against the backdrop of the credit crunch why has this super £10 million+ sector remained so strong? Despite the credit crunch, extraordinary wealth creation has continued until recently across the global oil and commodity sectors; the financial markets have taken a significant turn for the worse and will drag down the performance of the prime markets over the next 12 months. Recent falls in energy and commodity prices also point towards a weakening in wealth generation from these sectors in future months.

“The dislocation of London and Monaco’s top end market has been reflected in the only other true global super-prime market, Manhattan. Whereas prices in the US are still falling, prices for prime Manhattan properties rose 12.3% in the year to June, although indications are that the market is weakening through Q3.

“Does the divergence of performance mean we are close to the peak of the super-prime market? Our view is that fundamental economic arguments point to continued support for this sector. Demand is not going to evaporate, wealth creation and accumulation in emerging economies and in specific high end service sector activities will continue. The flight to quality in terms of both location and product we have seen over recent years will remain a constant.”

Courtesy: Knight Frank Residential Research

For further information, please contact:

Liam Bailey, Residential Research, Knight Frank
Tel: +44 (0) 20 7861 5133
Email: [email protected]

Niki Riley, Press Office, Knight Frank,
Tel: +44 (0) 20 7861 5037
Email: [email protected]