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How COVID-19 will shape the future of global prime residential markets

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COVID-19 has taken a heavy toll on luxury residential property markets worldwide.

According to new research by Knight Frank, Lisbon, Monaco, Vienna and Shanghai are the only major prime residential markets set to see price growth throughout 2020.

The analysis of 20 global cities highlights the direction of prime prices in 2020 and 2021 based on projections for demand and supply, the impact of COVID-19 in the different markets and the varying government stimulus measures announced.

It is important to note that with the current unprecedented scale of global economic uncertainty, putting an exact figure on forecasts is challenging.

Therefore, Knight Frank put the 20 cities into four price bands, as seen in the table below: strong price growth (+5% or more), low price growth (0% to 5%), flat or low price falls (0% to -5%) and strong price falls (-5% or less).

At the start of the year, Knight Frank predicted a number of markets around the world would see healthy prime price growth.

Paris led Knight Frank’s Prime Global Forecast 2020 report with expected growth of 7%, while Miami and Berlin were set to see rises of 5%, and Geneva and Sydney 4%.

"There were positive signs in several markets globally that prime prices would rise throughout 2020 but unsurprisingly, COVID-19 has put a halt to that," explains Liam Bailey, Global Head of Research, Knight Frank.

"Of the 20 cities Knight Frank has analysed, 16 of these will see prime price declines in 2020, with only a handful avoiding a fall into negative territory, either because of historic supply shortages or because transactions were able to continue during lockdown and these measures are already being eased."

Of the cities set to see a decline in prime prices, those likely to be hit hardest are either emerging markets or cities that were already seeing little growth at the end of 2019.

Monaco

5 property trends to monitor

With COVID-19 creating a ‘new normal’, Knight Frank has outlined five future trends to look out for in prime property markets around the world:

  1. With air travel paused, we may see buyers prioritise second-home markets that can be reached by road or rail
  2. With interest rates set to remain at historic lows in most advanced economies, some HNWIs will look to take advantage by refinancing or releasing equity in order to buy elsewhere
  3. The dollar remains strong, providing the US as well as the UAE, Hong Kong and other emerging buyers (whose currency is pegged to the US dollar) with an advantage in many markets
  4. With the holiday rental market impacted, a number of landlords are transitioning to the long-term rental market. This will suit city destinations where there is domestic demand rather than more remote second-home markets reliant on overseas tourism
  5. Property will continue to appeal as a long-term investment and store of capital

 

Lisbon, Portugal

Forecast for 2021

Looking further ahead to 2021, Knight Frank predicts a slight rebound in most markets.

"London and Lisbon sit out in front in 2021, with forecast growth above 5%. A number of other European markets such as Berlin and Madrid are also expected to rebound well," says Kate Everett-Allen, Head of International Residential Research, Knight Frank.

"In London’s case, the political certainty provided by last December’s general election boosted housing market confidence during January and February.

"With prices in some areas down as much as 25% over the last five years, we expect a sharp uptick in 2021."

Of the three US cities tracked, Miami is expected to perform strongest throughout 2021. The market here was already strengthening in 2019, in part due to the state and local tax (SALT) deduction, which heightened Florida’s appeal. But the COVID-19 crisis has also underlined Miami’s lifestyle advantage for many living in high-density markets.

Los Angeles’ lack of new prime supply should cushion price falls in 2021, while in New York, prime prices have declined in recent years, but transactions were starting to pick up at the start of the year.

Sydney and Melbourne prime markets are expected to rebound with growth of up to 5% forecast in 2021. High-net-worth expatriates will be part of this story, with a favourable currency exchange, reconsidering domiciles to improve the quality of their family’s wellbeing.

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