Global luxury home prices rise 8.4% in 2021: Knight Frank
Knight Frank’s Prime International Residential Index 100 (PIRI 100), which tracks and analyses prime price performance in 100 cities and second home markets worldwide, increased by 8.4% in 2021, up from 2% in 2020, according to the real estate consultancy’s annual The Wealth Report.
This is the highest annual increase in the value of the index since it was launched in 2008.
Luxury residential price increases in the Americas made the region the top performer, posting an average growth of about 13%. The Asia Pacific region grew by 7.5% and marginally outpaced the Europe, Middle East, and Africa (EMEA) region, which clocked in 7.2% growth.
“Far from running out of steam, this year we will see the luxury housing boom endure. Dubai, Miami and Zurich lead our 2022 forecast, with prime prices expected to end the year between 10% and 12% higher. Asian cities are expected to trail slightly but prices will grow,” says Liam Bailey, global head of research at Knight Frank.
Last year, the PIRI 100 saw prime prices in Dubai increase by 44%. This comes after seven years of negative price movements, but overall prices in the UAE are still 30% below their peak in 2014.
“The UAE’s handling of the pandemic, strong take-up of the vaccine, the delivery of high-end turnkey projects as well as innovative new visa initiatives and economic reforms, have together boosted Dubai’s profile in the eyes of international buyers,” says Kate Everett-Allen, head of international residential research at Knight Frank.
In Dubai, luxury residential transactions above US$10 million ($13.6 million) typically account for 2% of all real estate transactions, but in 2021 this figure jumped to 7%.
Bailey adds that some areas of concern the global luxury residential market could face include stock shortages, rising taxes and property cooling measures. But opportunities include a rebound in the demand for city markets.
Singapore prime home prices see modest growth in 2021
In Singapore, prime residential prices grew by a modest 3.5% in 2021, coming in at the 70th position in the PIRI 100 ranking of 100 key global cities. The figure lagged behind the sizeable 10.6% growth of Singapore’s overall private residential market in 2021.
Government policies to rein in runaway prices was a key factor behind the moderate growth in prime residential prices in Singapore.
A decade of government interventions have kept residential prices on a par with economic performance and household incomes in the city-state. As a result, this has kept Singapore’s private residential market steady in the face of external upheavals, says Knight Frank.
“The Singapore government announced recent cooling measures in December 2021 to temper the beginnings of a house-hunting boom that happened amid a pandemic. More recently, they have also announced the increase in property taxes that are targeted at higher-end assets which might potentially rein in some property investors’ interest,” says Leonard Tay, head of research at Knight Frank Singapore.
International travel restrictions also inhibited foreign investors’ ability to purchase homes in Singapore. This caused the number of units bought by foreigners to drop by 3.6% in 2020 and by 3.4% in 2021. In addition, a lack of luxury new launches contributed to a fall in transactions.
Number of wealthy individuals on the rise
According to The Wealth Report, the number of HNWI and ultra-high-net-worth individuals (UHNWI) around the world increased by 9.3% in 2021, with more than 51,000 people seeing their net assets increase to US$30 million or more.
This is a considerable increase compared to 2020 which recorded a growth of 2.4% in this population.
“Asset price rises, from property markets to equity markets and luxury collectables, have all helped boost the fortunes of those wealthy enough to have investment portfolios. The top five gainers for UHNWIs, in absolute terms, were the US, the Chinese mainland, France, the UK and Japan,” says Flora Harley, deputy editor of The Wealth Report at Knight Frank.
Over the next five years, Knight Frank expects this wealthy population to grow by 28%, with Asia and Australasia seeing the largest growth of about 33%, followed by North
America at 28%, and Latin America by 26%.
Singapore could see a 268% growth in the number of UHNWI over the next five years, which could total about 6,000 individuals in the city-state. Research by Knight Frank found that there are now 28 billionaires in Singapore as of end-2021, up from 25 in 2020.
“Singapore’s strategic geographical location as the gateway to cities in Asia Pacific, as well as the availability of modern infrastructure, a stable pro-business environment and newly-minted rich from pandemic-related growth industries and entrepreneurship, have led to a concentration of wealth and a growing ultra-rich population,” says Wendy Tang, managing director of Knight Frank Singapore.
A younger generation of self-made super-wealthy individuals is also leading the charge, says Tay. They include TikTok CEO Chew Shou Zi who purchased 11 Queen Astrid Park for $86 million, crypto-billionaire Zhu Su who bought his Good Class Bungalow (GCB) at Yarwood Avenue for $48.8 million, and Secretlab CEO Ian Ang who bought his GCB at Caldecott Hill Estate for $36 million.
ESG attitudes go mainstream
About 80% of the private bankers, wealth advisors, intermediaries, and family offices surveyed around the world by Knight Frank for this report cited an increasing importance in environmental, social, and governance (ESG)-related property investments.
Four key factors motivating this change are an interest in future-proofing their portfolios, a desire to be part of the climate awareness impact, opportunities for greater capital returns, and external pressures and reputational risk.
However, some barriers to entry persist such as limited access to green financing, lack of understanding of some ESG elements, access to reliable and comparable information, and limited ESG-related opportunities.
In Singapore, banks and lending institutions are starting to mandate ESG-compliance on top of recognised international and industry-wide standards when granting loans for development.
In Australia, while the focus on ESG provides opportunities, it also presents some risks to private investors who take a relatively more passive approach and delay necessary upgrades. This might mean that they are unable to meet evolving environmental standards that could impact asset performance.
In Indonesia, interest in investing in waterand energy-efficiency in buildings is growing among investors who recognise that more environmentally sustainable buildings tend to stay in use for longer and decrease the frequency of building renewals.