Iceland leads world in residential price gains

Limited supply, high demand boost ranking

Only the sharpest of investors could have identified two of the Top 3 markets with the highest property value gains in Knight Frank’s latest global index.

Iceland — with a population of 344,000 and with “only” 130,000 homes — emerged at the top with a 23.2 per cent value gain in the 12 months to the end of second-quarter 2017, while Malta was third, with property values up 14.6 per cent.

On either side of Malta were the more conventional real estate investment destinations, with secondplaced Hong Kong seeing home values up 21.1 per cent and Canada’s gaining 14.2 per cent.

Dubai occupies the 36th position in the rankings, after the premium end of the residential space dropped 3.5 per cent in value in the 12 months to end June 2017.

India tops Asia-Pacific

But what’s with Iceland’s stellar showing?

“Demand for accommodation led to a new law being introduced in January, which requires those renting their homes for longer than 90 days — or generating a rental income of more than 1 million krona ($9,500) per year — to obtain a special business licence,” Knight Frank reports.

Hong Kong’s gains came about despite three interest rate hikes in the last year.

“But like Iceland, strong demand and limited supply are behind its strengthening prices. Local buyers in Hong Kong, along with mainland Chinese investors, are keen to hedge against the yuan’s depreciation.”

India’s property market was placed a surprising ninth with a 10.5 per cent gain during the period.

Surprising because the November demonetisation move had a telling impact on realty market demand in the first three months of the year. But over the last five years, India was the best performer in the Asia-Pacific region, with its property market recording an “average price growth of 70 per cent”.

The US was placed at a relatively low 25th spot, despite indicators that key cities have seen fairly sharp spikes in demand. According to Knight Frank’s index, the across the board gains were at 5.8 per cent.

“[US] economic fundamentals remain firm — unemployment is down and wages are rising — yet the number of homes for sale has declined for the past four years, indicating a tighter housing market,” the report states.

Despite the fourth ranking, it still represents a slip for Canada from more exalted heights in previous years. Same with New Zealand, which dropped from third to tenth.

Both countries are grappling with runaway home prices in key cities, with foreign investor interest being the main cause. Canada’s key investment locations have already enacted higher stamp duties to cool down its property market.

In New Zealand, the realty situation could make or break the next government.