Post the Global Financial Crisis through to late 2016 / early 2017 many centres saw record values being set on a monthly basis.
While it was cities such as Vancouver, Sydney, New York and Hong Kong that captured most of the attention, closer to home, Auckland was experiencing the same trends. A rapidly expanding population, low interest rates and a housing shortage saw values boom across the region. Between 2012 and 2017 Auckland’s median rose by 58 percent, reaching $850,000.
Fuelling much of this increase in values has been strong demand for aspirational property at the upper end of the market. Properties located within a city’s prime suburbs close to employment centres, whilst also offering high levels of amenity and lifestyle advantages are viewed as trophy assets and command premium values.
The impact of this interest in premium property is clearly shown through the results of the Prime Global Cities Index produced by Bayleys’ global affiliate Knight Frank. The latest index figures (September quarter 2018) show that globally the value of prime property has increased by 55.7 percent since hitting its cyclical low in early 2009.
While the overall picture remains positive, with the prime property index rising in 74 percent of the cities surveyed over the 12 months to September there is no doubt that there has been a general softening in growth with the reasons for this consolidation being similar across many centres. These include the impact of rising interest rates across a number of economies and a tighter regulatory environment which has seen overseas buyers facing higher taxes or exclusion from some sectors of local markets.
Over the course of the year to September 2018 the price of luxury property increased by 2.7 percent on average across the 43 cities tracked within the index. While the latest figures show a moderation of growth rates this is hardly surprising given the fact that general market values in cities had already risen by significant margins over recent years and have, more recently, been moving into a period of consolidation.
Set against this general slowing of growth, Auckland’s prime sector has been one of the best performing over the 12-month survey period, registering an increase of 8.5 percent, placing it 6th on overall rankings – just behind Tokyo, which registered 8.6 percent over the same period, and matching the performance of Toronto.
Elsewhere across the globe there were mixed results ranging from an increase of 13.1 percent recorded in Singapore, which topped the rankings, to Vancouver which produced the weakest result with its index falling by 11.2 percent. The latest result for the city is in sharp contrast to those reported in mid-2016, when Vancouver topped the index with an annual growth rate of just over 36 percent. Since then, major policy changes aimed at cooling the city’s real estate market have been implemented and these have clearly impacted the upper end of its market over the last year.
Vancouver is not, of course, the only city which has seen a changing regulatory backdrop put in place with a view to restricting the influence of foreign buyers. Across the Tasman, the Sydney and Melbourne markets have seen increases in stamp duty and a restriction on overseas entities being able to buy established houses. Despite this, prime property in both cities saw value increases recorded within the Knight Frank index, with Sydney which saw growth of 4.2 percent outpacing Melbourne, at 2.8 percent.
In New Zealand, new restrictions on overseas buyers did not come into play until the latter part of October and therefore any dampening on the market will not have been picked up. Indeed it is possible that values were given a boost as overseas buyers took the opportunity to secure property before the new legislation came into force. It is likely, therefore, that growth will moderate over the next few months in line with the consolidation which has been apparent in the wider market since mid-2016.
A sharp decline in the value of prime property within the city, though, is unlikely. Migration to the city remains at elevated levels, interest rates are set to hold at low levels throughout 2019 and the regional economy is performing strongly.
The demand factors for prime property therefore remain very strong. Allied to this is the fact that the emphasis on development within the city is shifting, with a higher proportion of new-build activity being aimed at the more affordable end of the market. This shift is set to become more pronounced as KiwiBuild gathers momentum.
Given the acute capacity shortages which the construction sector faces, there will be a decline in the number of new higher value properties being brought to market. This will almost certainly see the value of existing prime stock lift again after a period of consolidation.
As we’ve seen, elsewhere in the world prime residential property performance has been mixed. Whilst Singapore has seen significant growth, Hong Kong’s growth rate has slowed, again in the face of regulatory changes. In Europe, Edinburgh and Madrid fill places two and three on the rankings while other centres have swapped spectacular for steady, such as Berlin and Paris.
In the UK, the upper end of the London market has been adversely effected by the uncertainty over Brexit, with values falling by 2.9 percent.
Looking to the short-term future, further moderation in global growth is all but certain with six-monthly growth softer than that recorded over the whole 12-month period across a majority of surveyed centres. In this respect, the strongly performing Auckland market is likely to fall in line, however over the longer term the prognosis remains positive.