Growth of 6% was seen in the first six months of 2011 but, says Savills Research, the index average hides a big difference between emerging ’new world’ economies and the indebted ‘old world’. A clear gap can be seen between what might be called the ‘old’ economies of Tokyo, London, Paris, Sydney and New York (which grew by 32% since 2005) and the ‘new’, or emerged, economies of Shanghai, Singapore, Hong Kong, Moscow and Mumbai which grew, on average, by 123% over the same period. Within the ‘old world’ the more cosmopolitan cities have fared much better than those that restrict foreign purchasers.
“It becomes apparent that the debt-induced crisis of 2008 was suffered most by the ‘old world’ cities and not the ‘new world’ ones,” says Yolande Barnes, Head of Savills Residential Research.
“The biggest ‘old world’ value rebounds have been experienced in the cities most open to new world investment, notably London and Paris.”
A shift has occurred in the global real estate premier league since 2005 according to Savills. Hong Kong remains the most expensive and values are now 107% above the 10 cities index average, and 63% more expensive than second place London, which is grouped alongside Tokyo, Singapore and Paris. Singapore has seen growth over the last five and a half years at 123%, so it has come up the ranks from seventh position in 2005 to fourth in 2011.
“With its strategic location in a time zone between Europe and North America, Hong Kong has emerged as one of the world’s elite financial centers, and as a gateway to China has prompted increased capital and talent inflow over the past decade,” says Simon Smith, Head of Savills research in Asia Pacific.
At the other end of the scale, Mumbai is the least expensive world class city, costing 43% less than the average of all the 10 cities. But it is the great pretender having grown by 154% off this low base, and recording the highest rate of growth over the period, (marginally ahead of Shanghai’s 143%).
On an individual basis, cities have performed very differently. Against Mumbai, Singapore and Shanghai’s stellar growth, New York grew by just 7% and now along with Sydney represents the best value by a considerable amount in the ‘old world’. Neither was there uniformity in the pattern and timings of price movements. Some cities have grown steadily over the whole survey period while others have shown pronounced peaks and troughs – at different times.
Savills Research has used pioneering new methodology to analysis relative values. Their new index ranks cities on the relative cost of the Savills Executive Unit (SEU), a basket of properties required to house an executive group of people that might start up or expand a global business in any country, where real estate costs become an important element of doing business. All comparisons are on the basis of the relative costs of the SEU in each city, thus overcoming some of the difficulties inherent in comparing real estate across continents.
All change for rental rankings
Fundamental visitor business and relocation activity in each city is revealed in Savills International rental rankings. These show that of the 10 cities, London has the highest rents and Mumbai the lowest. For any relocating or expanding business, these are sums worth noting as, in addition to office costs, they will impact on rental and relocation allowances for ex-pat staff and will probably have an effect on the pay demands of local staff too.
For the top five most expensive rental cities namely London, Paris, Hong Kong, Tokyo and Singapore, demand is fuelled by domestic, as well as corporate demand as would-be purchasers are pushed into the rental sector due to credit restrictions.
Rents have moved, on average, across all cities at a slower pace than capital values, thereby suppressing yields. There is an old world/new world difference in the growth of rents but it is not as pronounced as with capital values. This highlights that strong capital-growth-motivated investment activity is driving capital values in the ‘new world’ and means that yields are moving in much faster in these cities. In consequence, it might be said that there is a stronger case for rental-return-motivated investment in the cities of the ‘old world’.
Conclusion
“Increasingly, our cities have more in common with each other than with the domestic, mainstream markets in which they operate,” Barnes says.
“Their future performance will depend upon their continued appeal as places to live and work as well as to invest. We anticipate that the efforts being made to cool the markets in some parts of the ‘new world’ will take effect in the second half of 2011, so, although we expect their values to continue rising this year, it will be at a slightly more subdued rate.
“Meanwhile, ‘old world’ cities like Tokyo and Sydney are geographically very well placed to benefit from investment from frustrated Chinese and other Far Eastern investors but they will need to open up their markets to such investors to trigger this.
“It seems likely that, for wealthy, globally-footloose investors, prime residential property in London and Paris will remain a favoured ‘safe haven’ for wealth created in the ‘new world’ economies.”
Source: Savills |
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