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Luxury home prices recover as rate fears ease
Tokyo and Manila record highest annual growth rates after Dubai in Q2 2023
The Asset 20 Sep 2023

Average annual prices of luxury homes grew a modest 1.5% across 46 markets in the second quarter of 2023, an improvement on the previous three months, a new report finds.

This is well below the recent peak of 10.2% seen in the final quarter of 2021 but is the strongest rate of growth since the third quarter of 2022.

The shift to higher interest rates was the catalyst for the recent downturn in housing markets, but while policy rate tightening cycles are not yet at an end, there is a sense in many markets that the worst of interest rate uncertainty is past and mortgage rates have begun to edge lower in several major economies, according to the latest edition of Knight Frank’s Prime Global Cities Index.

“Prices are being supported by strong underlying demand, weak supply following disruption to new-build projects during the pandemic, and an ongoing return of workers to cities. As uncertainty over the direction of inflation appears to have reduced in recent months, price adjustments in many markets are likely to be less pronounced than was expected even three months ago," says Liam Bailey, global head of research at Knight Frank.

Top growth markets

Dubai maintained its top position in Frank Knight index, with home prices rising by 48.8% in the 12 months to June. They have soared by 225% since reaching a pandemic low in Q3 2020.

Tokyo secured the second place with an annual growth of 26.2%, followed by Manila with a 19.9% expansion.

Singapore's real estate market has demonstrated remarkable resilience after the pandemic, achieving a current annual growth rate of 4.2%.  

The influx of expatriates to the city-state, driven by its thriving financial and professional services sector, has impacted the rental market more than the sales market.

Singapore recorded an annual growth of 24.5% in rental prices, while super-prime sales (residential sales above US$10 million) experienced a squeeze in sales volumes. This discrepancy can partly be attributed to new regulations imposing taxes equivalent to 60% of purchase prices on foreign buyers.

Unsold inventory

In Hong Kong, prices dipped by 1.5% over the past year. While higher interest rates have weighed on prices, a recent surge in unsold inventory from newly developed projects has placed further pressure on the market.

The city has tweaked its financing regulations to stimulate demand, raising the mortgage loan-to-value ratio to 70% for residential properties valued at HK$15 million (US$1.92 million) or less. While buyers will likely welcome this change, its ability to significantly boost growth remains uncertain.

Frank Knight expects cities in mainland China to remain hamstrung by weak sentiment that would require significant efforts from authorities to shore up.

"Asia-Pacific prime residential markets are showing stabilization, with eight markets reporting quarter-on-quarter declines in prices, compared to 10 from a year ago,” says Christine Li, head of research at Knight Frank Asia-Pacific. “Near-term price growth have also outpaced those from 12 months ago, signalling stronger momentum ahead.”

Seoul recorded a significant rebound, reversing a 4.5% decline from a year ago to rise over 10% over the quarter. “With monetary authorities turning resistant to further hike amid peaking inflation, price declines induced by the rise in interest rates will continue to wane. Further adjustments ahead will largely be driven by property market fundamentals,” Li says.

Australia, which saw robust growth during the pandemic, experienced a sharp downturn in the latter half of 2022. However, with demand outweighing weakened supply in cities like Sydney and Melbourne, growth has turned positive annually in those cities.

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