It’s the old world versus new in world class city rankings
THERE are ten world cities in a class of their own when it comes to residential real estate, according to new research by Savills.
The new ‘“World Class Index” of premier global residential property locations reveals average values across the index have risen by 77 per cent since December 2005, despite the intervening financial crisis.
Growth of six per cent was seen in the first six months of 2011 but, says Savills Research, the index average hides a big difference between emerging “new world’”economies and the indebted “old world”.
A clear gap can be seen between what might be called the “old” economies of Tokyo, London, Paris, Sydney and New York (which grew by 32 per cent since 2005) and the “new”, or emerged, economies of Shanghai, Singapore, Hong Kong, Moscow and Mumbai which grew, on average, by 123 per cent over the same period. Within the “old world”, the more cosmopolitan cities have fared much better than those that restrict foreign purchasers.
“It becomes apparent that the debt-induced crisis of 2008 was suffered most by the ‘old world’ cities and not the ‘new world’ ones,” says Yolande Barnes, head of Savills Residential Research.
“The biggest ‘old world’ value rebounds have been experienced in the cities most open to new world investment, notably London and Paris.”
A shift has occurred in the global real estate premier league in the last six years.
Hong Kong remains the most expensive and values are now 107 per cent above the 10 cities index average, and 63 per cent more expensive than second place London, which is grouped alongside Tokyo, Singapore and Paris.
Singapore has seen growth over the last five and a half years at 123 per cent, so it has come up the ranks from seventh position in 2005 to fourth in 2011.
“With its strategic location in a time zone between Europe and North America, Hong Kong has emerged as one of the world’s elite financial centres, and as a gateway to China has prompted increased capital and talent inflow over the past decade,” says Simon Smith, head of Savills research in Asia Pacific.
At the other end of the scale, Mumbai is the least expensive world class city, costing 43 per cent less than the average of all the 10 cities. But it is the great pretender having grown by 154 per cent off this low base, and recording the highest rate of growth over the period, (marginally ahead of Shanghai’s 143 per cent).
On an individual basis, cities have performed very differently. Against Mumbai, Singapore and Shanghai’s stellar growth, New York grew by just seven per cent and now along with Sydney represents the best value by a considerable amount in the “old world”.
Visitor business and relocation activity in each city is revealed in Savills International rental rankings. These show that of the 10 cities, London has the highest rents and Mumbai the lowest.
For the top five most expensive rental cities namely London, Paris, Hong Kong, Tokyo and Singapore, demand is fuelled by domestic, as well as corporate demand as would-be purchasers are pushed into the rental sector due to credit restrictions. Rents have moved, on average, across all cities at a slower pace than capital values, thereby suppressing yields.
“Increasingly, our cities have more in common with each other than with the domestic, mainstream markets in which they operate,” Yolande Barnes says. “Their future performance will depend upon their continued appeal as places to live and work as well as to invest. We anticipate that the efforts being made to cool the markets in some parts of the ‘new world’ will take effect in the second half of 2011, so, although we expect their values to continue rising this year, it will be at a slightly more subdued rate.”