Key findings

• Paris leads our prime residential forecast for 2020 with price growth of 7% - Stable economy, low interest rates, constrained prime supply, strong tenant and second home demand will underpin prime price growth 
• In second place sit Berlin and Miami where we expect to see prime price growth of 5% - Strong demand and significant regeneration will keep Berlin high in the rankings. In Miami, we expect the city to benefit from continued momentum from the State and Land Tax deduction
• At 4%, Geneva and Sydney are both seeing prime price growth recover having dipped in recent years - Confidence has returned due to lower interest rates and limited supply. Both cities are recipients of significant transport infrastructure
• We expect to see Madrid, Singapore and Melbourne to register price growth of 3% - International enquiries (Madrid), redirected capital outflows (Singapore) and a lower interest rate environment (Melbourne) shoring up demand
• In LA, our forecast of 2% hides a complex picture - Below US$2m the market is active with strong demand for quality properties. Above US$10m, the market is slow 

In addition we cover: 

• Prime price growth over a decade 
• Events that will shape 2020 (UK election, US Presidential election, Dubai Expo 2020, Singapore possible general election and Tokyo’s 2020 summer Olympics)  
• Property regulations and the changes that will take place in the year to come 
• We name nine trends to watch in 2020 as well as the infrastructure opportunities around the world which will likely impact prime price growth 

 

IN  SEARCH OF RETURNS

With capital growth in most prime residential markets shrinking in 2019, we set out our forecast for 2020 and outline the key trends that look set to shape future performance.

At the end of 2019, the globaleconomic landscape looks markedly different from that a year ago. In 2018, economists predicted 'the new normal' – that of higher interest rates and more expensive debt – yet it failed to materialise. Instead, we have seen 144* interest rate cuts globally in the last year, with quantitative easing (QE), once an extraordinary measure, now back on the agenda in the US and the Eurozone.

With interest rates remaining lower for longer, property’s attraction has been reinforced. Yet, at the prime end of the market, particularly, in the world’s top tier cities, sales volumes largely drifted lower during 2019.

Prime price growth also stumbled in 2019 across many cities. The Knight Frank Prime Global Cities Index, which tracks the movement in prime prices across 45 cities worldwide, is mirroring global economic growth. The average annual rate of growth in the year to Q3 2019 was 1.1%, meaning prime prices are rising at their slowest rate in a decade.

The Forecast

Paris leads our prime residential forecast for 2020 with price growth of 7%; economic stability, low interest rates, constrained prime supply and strong tenant, as well as second home demand, will underpin price growth. Home to Europe’s largest infrastructure initiative, the Grand Paris Project, as well as the 2024 Summer Olympics, both events will provide further stimulus.

In second place, sit Berlin and Miami, we expect both markets to see prime price growth of 5% in 2020 but for different reasons. Sound fundamentals – strong demand (domestic and international) and significant regeneration – will keep Berlin high in the rankings despite the proposed rent cap. In Miami, we expect the city to benefit from the continued momentum from the State and Land Tax (SALT) tax deduction.

At 4%, Geneva and Sydney are both seeing prime price growth recover having dipped in recent years. Confidence in both residential markets has returned due to lower interest rates and a limited supply pipeline. Both cities are also the recipients of significant transport investment; the Leman Express (CEVA) in Geneva and in Sydney, the CBD & South East Light Rail.

The next grouping can be defined as steady yet sustainable. Although at different stages of their market cycles we expect Madrid, Singapore and Melbourne, to register price growth of 3% in 2020 with international enquiries (Madrid), redirected capital outflows (Singapore) and a lower interest rate environment (Melbourne) shoring up demand.

In Los Angeles, our forecast of 2% hides a complex picture. Below US$2 million the market is active with strong demand for quality properties, above US$10 million the market is slow, patchy at best, whilst the mid-segment US$2-US$10 million is registering moderate price appreciation.

Against a tumultuous political backdrop, we expect Hong Kong’s luxury segment to see largely static prime prices (0%) in 2020. Research by our Hong Kong team shows the Hang Seng Index leads the mass residential market by three to six months but luxury prices are largely resilient with a weak correlation to both GDP and equities. A number of high-end transactions in The Peak in 2019 would support this argument.

For Mumbai (-1%) the economic environment deteriorated in 2019 influencing market liquidity, this was further exacerbated by an additional 1% stamp duty taking the total to 6%. We expect prime buyers to remain cautious in 2020.

In London, all eyes are on the General Election, our 2% forecast from a year ago will be updated once we know the outcome and the future timetable in relation to Brexit. For now, the indication is that pent-up demand is building – for every new property listed in prime London in September, 14 new prospective buyers registered with Knight Frank, the highest level in more than ten years.

For Dubai (-2%), 2020 marks a landmark year when it will host Expo 2020. Forecast to attract 25 million visitors, the city has seen significant investment in new infrastructure in the lead up to the event, such as the expansion of the Metro Line. These changes, along with the introduction of long-term visas of up to 10 years, will boost prime demand.

In New York (-3%), we expect lower mortgage rates and strong employment indicators to start to cancel out the high completion rates seen in recent years.

Despite sitting at the bottom of our rankings for 2020, Vancouver’s -5% decline in prime prices reflects an improving scenario. Prime prices have been falling at a rate of 15% per annum but shrinking inventories, along with a gradual adjustment to the property market regulations, are seeing a slow recovery in buyer sentiment.

A YEAR IN REVIEW

PROPERTY  REGULATIONS in 2019

BERLIN: A new rent cap has been passed by the Senate of Berlin but awaits approval by the national court. The proposed rent cap would exclude all apartments ready for occupancy after 1 January 2014.

DUBAI: The introduction of long-term visas of up to 10 years (via investment in real estate (up to five years) or for business investment (10 years). Plus, new powers for Dubai's Real Estate Regulatory Agency (RERA) – to oversee the development of a comprehensive and strategic plan for all future real estate projects.

HONG KONG: Easing of lending rules for first time buyers – now able to borrow HK$8m (US$1m) with a 10% deposit.

MADRID: Reforms to rent laws – rents now CPI-linked, deposits capped at two months' rents.

MUMBAI: A reduction in GST rates from 12% to 5% on under-construction residential property. A 1% increase in buyer stamp duty from 5% to 6%.

NEW YORK: A rise in the NY State Transfer Tax and new graduated Mansion Tax for homes above US$3m+ and revised rental law.

TOP RISKS T O PRIME PROPERTY MARKETS BY WORLD REGION

EUROPE

1. Change in government
2. Brexit

ASIA

1. Change to property market regulations
2. Local economic slowdown

NORTH AMERICA

1. Global trade disputes
2. Oversupply of luxury homes slowdown

MIDDLE EAST

1. Commodity prices
2. Geopolitical crises

AUSTRALASIA

1. Global economic slowdown
2. Local economic slowdown

TRENDS TO MONITOR

1. Golden Visas: Portugal looks set to shift the focus of its Golden Visa from property investment to job creation.
2. NYLON bounce: Some Brexit clarity and a cooling of trade tensions ahead of the US Presidential Election could see London and New York’s prime markets spurred on.
3. Florida in focus: With the SALT deductions underlining Florida's benign tax structure and with US mortgage rates almost at their historic low, South Florida is likely to see demand strengthen.
4. Europe’s PRS sector appeals: In a late-cycle, low-yield environment, Europe’s private rented sector has come under the spotlight as investors look to cities offering connectivity and liquidity.
5. Downsizing down under: Sydney and Melbourne are seeing strong demand from downsizers seeking easily maintainable properties close to city centre locations.
6. A small world: In November 2019, Qantas tested its new 19-hour nonstop flight from London to Sydney which may be operational by as soon as 2022. Improved connectivity has the potential to reshape second home markets.
7. Holiday homes targeted: Expect greater regulation of the holiday homes rental market in those cities that attract a high volume of tourists.
8. Negating negatives: Where negative rates persist (Switzerland, Japan, Eurozone, Sweden), property will increasingly appeal as a means of generating a return.
9. Climate action: Developers and lenders are reducing their carbon footprints and overhauling their commitments to sustainability, whilst ESG principles are being prioritised by institutional investors.

Courtesy: Knight Frank

CONTACT FOR FURTHER INFORMATION

Astrid Recaldin, nee Etchells- Head of Gobal Wealth & International PR

Knight Frank Research

Reports are available at knightfrank.com/research

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