Global House Prices (The Bugle)

If you could live anywhere in the world, where would that be? Having travelled extensively for five years between 1991 and 1995, I soon realized that most places have something really good to offer and our basic human nature tends to make us gravitate to the places where we are most familiar. This is why we find that with residential property people tend to buy and sell within a very limited geographical area – the sellers become buyers within the same area and vice versa. However, wealthy individuals are likely to own several properties around the world. They often tend to buy in areas for political reasons, such as mainland Chinese investors buying residential homes in Hong Kong, or South Africans buying in Mauritius, or for pure recreational reasons, such as German buyers buying a holiday home in Zimbali which they may use one month of the year. Everything is relative. Russians buying over-priced Dubai apartments were happy to do this as long as it provided a way of channeling undeclared money into mainstream investments. The price premium was a small price to pay. Money tends to move faster and earlier than governments are able to legislate the limitations on cross border investments. Knowing this, economists have often debated the value of exchange controls and have in fact argued that they are counter-productive. The argument for limiting the buying of South African residential properties by foreigners is as short-sighted and ill-informed as the idea of limiting foreigners from buying bonds or equities in our local financial markets. 

The fascinating Knight Frank Global House Price Index report tracks 55 housing markets around the world. The recently published report for the fourth quarter of 2012 shows that 20 of these housing markets actually fell in 2012 with 19 of these being in Europe. So where is the world’s hottest residential real estate market at the moment? Hong Kong leads the pack with property prices growing by 23.6% in 2012. This is basic economics at work. With limited supply and excess demand being generated by wealthy mainland Chinese investors, prices are being driven upwards. Dubai was logged in second place with growth of 19% in 2012. Dubai experienced significant depreciation in prices from 2008 onwards as bank finance evaporated and large development projects stalled. A strong recovery seems to be evident as sales volumes are rising and market transparency is improving. The US property prices grew by 7.3% in 2012, the largest annual rise since 2006. South Africa took position 11 on the list, just ahead of the US, with growth of 7.4%. Other winners on the list were Brazil in third spot with house price growth of 13.7%, Russia with 10.2%, Taiwan with 9.7%, China with 9.3% and India with 8.5%. Two Eurozone countries that bucked the trend in Europe were Turkey with house price growth of 10.5% and Austria with 10.1%. So who were the biggest losers? Greece fills the bottom slot on the list of 55, with a decline of -13.2%, and Spain is not far behind with a decline of -10%. The Netherlands is a somewhat surprising member of the losers club, having registered a decline of -6.3% in house prices.

(Author: Andreas Wassenaar, Published in The Bugle, 3 April 2013)