The three cities with the greatest increase in luxury real estate prices last year were all in China, according to a report. CNBC detailed the release of The Wealth Report, an annual publication by the London-based Knight Frank real estate firm. It found that Shanghai experienced the biggest annual price increase for prime residential real estate. Prices for prime property in that city rose 27.4 percent, followed by Beijing (26.8 percent) and Guangzhou (26.6 percent). Rounding out the Top 5 were Seoul, South Korea, and Aukland New Zealand. Prices increased about 16 percent in those cities. Demand is a factor in the price increases, according to Swiss private bank Julius Baer, which tracks prices for luxury goods and services. The company’s head of business development Stefan Hofer said it is highly unpredictable whether markets like Japan and South Korea could benefit from such a huge demand in the next five years.
“The switch can be rather fast, not to mention more and more regional rivals are vying for a slice of the business, ratcheting up the already elevated competition.”
Overall, China’s real estate market has strengthened over the past year due to the growing economy, increased demand for housing and a fairly low supply. What’s more, a crackdown on moving money offshore is driving more money into domestic real estate. More Chinese may be investing in domestic real estate because of currency regulations in the country that now prohibit the exchange of yuan for real estate, making it tricky to get currency into foreign markets. But China’s real estate market remains worrisome, says Deutsche Bank China economist Zhiwei Zhang.
“Our main concern remains to be the property bubble which seems to be growing larger in recent months. The surprisingly mild policy stance from NPC likely reinforced the “one way bet” mentality in the market. Anecdotal evidence suggests property prices are rising quickly in some tier 1 and 2 cities.”
On the global front, a number of cities traditionally favored by the wealthy have suffered from the currency shifts or new taxes. The top-ranked city in last year’s report was Vancouver, which dropped to seventh place after British Columbia passed a 15 percent tax on foreign buyers. According to Brad Henderson, chief executive officer of Sotheby’s International Realty Canada, increased inquiries about Vancouver real estate haven’t translated into sales because property buyers often take months to make purchase decisions. He said he anticipates growth in sales in 2017, and believes Chinese buyers will also return to Vancouver as they absorb the news of the tax.
“It may not necessarily have the same return as it did from an investment standpoint, but there are so many other reasons for people to want to consider Vancouver that it makes sense to us that we would see an increase in activity and actual sales in 2017 because a lot of dynamics that were at play in 2016 before the tax are still in play today.”
In London, luxury real estate prices dropped by 6.3 percent amid an increase in the stamp duty for nonprimary homes — not the U.K.’s decision to exit the European Union — put a damper on sales. New York City prices increased 3.5 percent, as the stronger dollar and growing supply for luxury condos kept the market in check. Yet when it comes to the most expensive luxury real estate market in the world, Monaco still reigns. Knight Frank measured how much luxury real estate $1 million buys around the world, and in Monaco, it shakes out to just 182 square feet of prime space. Hong Kong was the second most expensive city, with $1 million equating to just 215 square feet. In third-ranked New York City, $1 million buys you 280 square feet of prime space. In Monaco, interest is generated by buyers form Russia, China and the Middle east, the head of Knight Frank’s Monaco department, Edward de Mallet Morgan, told CNBC. While Monaco’s property buyer base is shifting towards a slightly younger demographic, the tax question remains top of mind.
“Younger buyers tend to be from Northern Europe but also from the Middle East and Russia/the CIS. The profile of younger buyers is mixed, their wealth has often emanated from the technology and finance industries or from sport and the media/entertainment business.”