World View

Global property markets were all over the map last year. Knight Frank's Liam Bailey describes the international year that was.

Squarefoot - - CONTENTS 目錄 - TEXT BY ELIZABETH KERR

Hong Kong wasn't the only global city with a head-scratching year. Buyers and investors were becoming wary of previously popular locations like Australia and Canada due to skyrocketing prices and tax regimes, and the prospect of interest rates (finally) rising and the ongoing, worldshaking trade dispute between the United States and China had a considerable impact on global markets—and that doesn't factor in game changers like Brexit. All things considered, markets exceeded expectation in many cases, and potentially set up a relatively stable 2019.

Outperforming

“I think the global markets performed better than expected, partly because the global economy performed stronger than expected,” begins Knight Frank's global head of research, Liam Bailey, at the agency's Wan Chai office. “At the end of

2017, we knew the global economy was in a good place then, but the headwinds from a trade war and the accumulation of Chinese debt [made] people nervous about the global economy slowing down. The fact it didn't— irrespective of Brexit—and continued to grow strongly has held markets longer than they would have,” he says. “In a nutshell, it's positive, but price growth is slowing.”

Bailey's research on global, gateway cities indicated the same sentiments were influencing buyers around the world, and that chief among them, even ahead of international relations, was the impact of forthcoming interest rate increases. Indeed, price growth has slowed globally, but it remains positive, particularly in the ultraprime residential sector. Capital gains have slowed to half of what they were averaging in previous years—3% down from 6%— but overall gains remained positive. Bailey echoes his peers at JLL and Savills when stating the incline is going to be slow and steady. “The good news is that the central banks don't feel forced into rapid rises. Where it becomes more significant, for investors, is that you're used to yields based on low interest rates. You'll have to hope the rents rise in tandem with rates. But it does put that question mark in the minds of investors.”

Hong Kong investors didn't turn their backs on the Uk—and neither did mainland Chinese buyers, despite currency controls, who make up the largest offshore buyer group in the country. While the currency play didn't pan out as expected, the London market did slow in anticipation of the Brexit vote, with prices softening. As such, the last 12 months saw a bump in the £5 millionplus band. “When the feeling is that the market is weak, people feel like they have more power as a buyer,” notes Bailey.

The same can't be said for stalwarts Australia and Canada, where many investors have been priced out of the market or are staring down an additional 15% tax as an overseas buyer. Rather than curbing investment, however, the taxes simply pushed Hongkongers south of the border.

Winds of Change

Perhaps the biggest shift in 2018 globally was the return of investor attention to Europe. Bailey agrees that as London prices have begun to wane, and Brexit uncertainty lingers (as of printing the parliamentary vote on the deal has been delayed), investors increasingly reconsidered the continent.

“Europe has been growing in popularity in the past two or three years. It was so weak and so off the radar about three years ago, and then the economy began to expand and investors reacted to that,” explains Bailey. “The city markets in Europe—berlin, Frankfurt, Paris, Amsterdam—have all been doing really well. As London cooled, people thought about different locations in Europe as alternatives. The lifestyle and investment case is really quite compelling for these markets.” Other locations such as tech hubs Madrid, Barcelona and Lisbon have drawn investor attention, but Europe has yet to exploit the value of its second-tier the way the US has, in Austin and Denver among others, and Europe has yet to create a viable “second” London.

The fallout from the year-end G20 summit in Argentina has yet to be seen but even if economic peace falls over the land, investment has changed. “Ten years ago, five years ago, you buy in these global cities and make money. Now, you have to think much more carefully about what you're buying, and where,” says Bailey. Are they performing assets, are they near infrastructure or regeneration areas that will pay dividends in the long run? “But … motivation isn't always revenue generation. Sometimes it's diversification, but a lot of buyers [still] need the income to service the debt.”

Given the activity of the last few years, Bailey is cautious when he considers other lingering factors that could derail the markets in 2019. At the top of the list: “A global or domestic recession. We're overdue for one,” he finishes. “But there are always risks to the global economy. I think it's set to be fair. We know rates are going to be rising; investors can't just assume a market will deliver for you.”

If 2018 has demonstrated anything, it's that global investment in a rising rate environment is a new world: the next 10 years won't be like the last 10.

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