Luxury home market slows

The world's seemingly endless gluttony for luxury property might be waning. Prime property prices rose an average of 4.3 per cent in the year ended September 11, the smallest increase in the last two years, according to the Knight Frank Prime Global Cities Index.

That may sound like healthy growth, especially considering the economic woes still impacting so many of the world's economies. But there are several cracks visible in the bull market that gripped the luxury property business.

Only eight of the 21 cities tracked by the luxury home index reported a gain in the last three months. And Asia is no longer posting the same gaudy numbers.

Hong Kong actually fell 2.4 per cent in the third quarter, compared to the previous period,  and Beijing rose a pedestrian 2.2 per cent.

"Although the credit crunch and the resulting lending restrictions had a nominal effect on the prime market in 2008 and '09, issues of affordability have arisen, even among wealthy purchasers and a more cautionary climate is emerging," the report says.

The results were skewed by big gainers Nairobi, which jumped 25 per cent in the year, and Jakarta, which increased 15.1 per cent. London prices increased 11.4 per cent in the year.

The Middle East was flat for the year, with Abu Dhabi showing a 3.6 per cent decline and Dubai dropping 0.3 per cent in the year. Dubai prices fell 2.3 per in the six months ending Sept. 11, according to Knight Frank.

"Luxury homes in prime global cities will, we believe, retain their safe haven reputation, but they will attract fewer speculative investors seeking a short-term gain," Knight Frank concludes.