Property has been one of the most dazzling investments since the financial crisis as global hotspots attract wealthy investors from all over the world.
Cities as diverse as London, Hong Kong, Jakarta, Dublin, Vancouver, Miami, Sydney and Istanbul have all posted double-digit annual growth figures in recent times.
The UAE has also been swept up in the property bonanza – notably in 2013, when Dubai posting an incredible 51 per cent growth, according to Cluttons.
Easy monetary policy in the shape of record-low interest rates and quantitative easing has fuelled the global property surge by driving up asset prices across the board.
Nothing lasts forever, though. The Chinese crisis, expectations that the US Federal Reserve will soon hike interest rates and widespread government intervention to deflate bubbles have removed some of the froth.
Global house prices increased by just 0.1 per cent in the year to June, the weakest in four years, according to new figures from the international estate agents Knight Frank.
But opportunities still exist. In the week Dubai hosted its annual Cityscape Global property exhibition, here are five property hotspots to consider right now:
The UAE
After the breakneck property price growth Dubai had in 2013, something had to give.
The Dubai market fell 12.2 per cent in the past year to June, according to Knight Frank, making it the worst performer among the 56 regions it tracks.
But the Savills World Residential Investability Ranking suggests the UAE will soon be on the up again.
Savills ranks the UAE second for residential investment potential because of domestic wealth creation and demographic and regional demand. Only the United States looks a better prospect right now, it says.
CBRE’s new Global Living Report claims the top end of the UAE’s residential market is relatively “affordable” when compared with London, New York or Hong Kong. Prime property in London costs US$3,000 per square foot compared to $1,300 at the very top end of the market in Dubai.
Faisal Durrani, the head of research at the property consultancy Cluttons, says the recent Dubai slowdown is down to government mortgage caps and higher property registration fees rather than economic worries. “Affordability is also stretched, as wages clearly haven’t risen at the same rate as house prices.”
Cluttons figures show that villa prices in Dubai fell 7 per cent in the year to June, and Mr Durrani predicts another 5 per cent to 7 per cent drop in the remainder of the year. “We don’t see this as a crash – rather property finding its real floor. Lower, more affordable prices will allow more people to access the market.”
Apartment prices are stagnant rather than falling, and growing demand should lift them again, he says. “Another 400,000 people are expected to come to Dubai, but there is a pipeline of just less than 7,000 apartments. Prices and rental yields are both likely to head north.”
The off-plan market remains healthy because prices are 30 per cent lower than on completed projects, he adds.
Price growth in Abu Dhabi has been less extreme, but properties have still risen 34 per cent of total over five years – again, faster than wages.
Mr Durrani says Abu Dhabi has been hit harder by the slowdown in oil prices because its economy is less diversified than Dubai. “Federal mortgage caps have also had a significant impact,” he adds. “A family buying a Dh5.5 million home would effectively have to put up 40 per cent in upfront equity, including costs. People don’t have that kind of cash.”
Mr Durrani also picks Bahrain and Oman as GCC countries with good prospects, with Bahrain springing back into life following the political troubles of 2011 and Oman growing in popularity among Indian and Iranians expatriates in Dubai.
Matthew Montagu-Pollock, the publisher of the Global Property Guide, says smaller properties in the UAE can still generate attractive gross rental yields of about 7.2 per cent. "Investors will ask themselves where they can earn that kind of annual return without currency risks."
US
The US is the world’s No 1 residential property investment opportunity right now, according to Savills.
Yolanda Barnes, the director of world research at Savills, praises US economic growth and market recovery potential, and tips San Francisco as the best residential market, ahead of New York, Los Angeles and Miami.
Sarah Simpson, an associate at Knight Frank, tips San Francisco, New York and Vancouver in Canada. “For Florida, our buyers mainly focus on purchasing along the South-east coastline from Palm Beach down to Miami, where there are thousands of condo units for sale or under construction.”
Prices in New York can be prohibitive, but there are bargains if you know where to look.
“A three-bedroom apartment in Manhattan’s West Village and Meatpacking District is going to set you back about $4.5 million, but in a growth area like Harlem a similar-sized loft apartment costs under $2 million,” says Ms Simpson, adding that global money is now pouring into New York.
“In the past week I have registered purchasers from the United Kingdom, Luxembourg, Kuwait, Qatar and Saudi Arabia, with budgets ranging from $1.5m to $45m.”
Many Middle Eastern buyers are buying condos initially as rental investments, then residences for children studying in the city. “These are all cash buyers and not one has raised the question of a potential housing bubble. Buyers have to be in a position to complete quickly.”
Buyers in Toronto and Vancouver must also be ready to act fast, Ms Simpson adds. “Vancouver in particular is suffering from a lack of supply, leading to multiple bids and strong prices.”
London
London has grown fat on foreign investment over the past six years, but now the city’s prime central property market looks a little bloated.
Buyers from the Middle East, China, Russia, Greece and Singapore have been attracted by the UK’s political stability and recent currency weakness.
London is now the world’s second-highest value location, according to CBRE, with prices in central areas up 86 per cent since 2009.
With locals often priced out, politicians have acted to stem the flow of foreign capital, hiking taxes on foreign buyers and stamp duty on £1m-plus properties.
Annual house price growth has now softened from 12.7 per cent to 7.3 per cent, according to new figures from the British lender Nationwide. The slowdown has been most marked in prime central London hotspots, where the average sale price of houses worth more than £3 million (Dh16.9m) has fallen 12 per cent in the last quarter.
Naomi Heaton, the chief executive of the property investment specialist London Central Portfolio, says: “London has divided into a fast and slow lane, with the brakes firmly on at the more expensive end while demand is still strong below the £1m mark.”
She says prime central London is still underpinned by the scarcity of residential housing stock in the most exclusive borrowers areas such as Knightsbridge, and Chelsea, and Kensington and the City of London.
Strong demand and supply shortages will keep UK prices buoyant, with Savills rating the country fourth on its residential property investment league table.
Europe
While London property has boomed, Europe has stalled because of the single currency crisis.
The continent has been the weakest-performing world region for 15 consecutive quarters, according to Knight Frank.
There are signs that Europe is on the move, however, with year-on-year prices to June up 2.8 per cent and Turkey, Estonia, Luxembourg and Ireland posting double-digit growth.
Prices are still falling in popular tourist destinations, down 0.1 per cent in Spain, 2.3 per cent in France, 3.4 per cent in Italy and 6.5 per cent in Cyprus.
Angelos Koutsoudes, the head of the Overseas Guides Company, says Europe now offers a long-term opportunity as prices bottom out, and the area is particularly attractive to currencies toed to the US dollar.
“The euro has now fallen to a 12-year low against the dollar, which makes French or Spanish property considerably cheaper,” he says, adding that Spain is slowly recovering. Lisbon in Portugal is becoming an investment hub, helped by the country’s popular golden visa programme – it grants residency to non-EU nationals who invest more than €375,000 (Dh1.5m) in property, – an amount recently reduced from €500,000.
Mr Koutsoudes adds: “In France, skiing property in the Alps remains one of the most buoyant international markets, given its reliable rental market.”
Asia
Hong Kong was the best-performing property market in the world over the past year, rising 20 per cent, according to Knight Frank. Indonesia also grew strongly at 6 per cent. Malaysia returned 4.2 per cent, but Singapore fell 3.2 per cent.
Hong Kong is now the world’s most expensive residential location, with the average property costing $1,377 per square foot, according to CBRE, largely due to shortage of supply.
The recent Chinese stock market crash and growing concerns over emerging market growth are likely to hit sentiment.
Cusson Leung, the head of Hong Kong research, conglomerates and property for JPMorgan, warned that the Hong Kong economy contracted sharply last month and property prices could fall by 5 per cent to 10 per cent next year.
Mr Montagu-Pollock says Tokyo is growing strongly but China, Singapore, Vietnam and Indonesia have already entered a downturn.
The slowdown in Singapore is largely because of “sensible” government measures to head off a bubble, such as reducing mortgage terms, limiting loan-to-value ratios and charging stamp duty on properties resold within a year.
“These market-cooling measures have been effective, with some sort of stability achieved,” says Mr Montagu-Pollock.
Savills rates Singapore the third-best residential investment opportunity in the world right now, so it may be ready to rebound.
But like so many global property markets, prices have been driven by demand from international investors and expatriates, all too often squeezing out the locals. If global interest rates start rising, this trend could finally slow. But for now, there are plenty of options for investors with long-term horizons.
pf@thenational.ae
