REGIONAL MARKETS DEFY GLOBAL PROPERTY SLOWDOWN

Tuesday, December 12, 2007

Growth in residential property prices around the world has fallen 1.4% y-o-y to 8.2% in Q3 2007 according to research from property specialist Knight Frank. In its latest Global House Price Index, the firm attributes the slowdown to tighter lending criteria across Europe and rising interest rates across much of the Western world.

The Central Eastern European and Baltic markets tell conflicting tales however. Latvia, ranked first for the last 10 quarters has been knocked off top spot by Bulgaria which recorded 30.6% growth, despite concerns of over supply in Bansko and Sunny Beach. Although growth in Latvia is hovering at just over 10%, this is markedly lower than the previous 40% - 50% growth seen in recent years. Prices in Riga have been falling as rising interest rates and legislative changes designed to remove speculators from the market prove successful, most notably in the one bedroom apartment market.

“Although growth has slowed overall, prices remain stable in the detached housing market in the city,” said Liam Bailey, head of residential research for Knight Frank. “However, consumer confidence has fallen and the tightening of credit conditions has undoubtedly had some impact on the Latvian market. The volume of transactions is down for all property types and we expect that sellers of detached properties are reluctant to accept reduced offers.”

Estonia has also recorded a slowdown in price growth. New build properties have recorded the greatest decline in asking prices, while rental values in Tallinn are increasing, suggesting local buyers are being priced out of the market.

Western Europe
In Ireland, property price growth has slowed to just over 14% in Q3 2007, which Knight Frank believes could be the “long awaited correction” after years of strong growth. Spain has seen y-o-y price growth of 5.3%, despite rumours of a market in decline.

Scandinavian markets remain robust, with Finland (6%), Norway (11.7%) and Sweden (10.9%), all recording consistent moderate growth. Iceland, however, has made its debut in the table (4th) after recording an annual price rise of around 14%. This is despite the country’s central bank raising interest rates to 13.75% at the beginning of October in an attempt to reign in inflation.

Germany continues to languish at the bottom of the table, with a price fall of 3%. There is some positive news for the market however as this decline in residential house prices is less than last quarter’s figures. Prices rose by 0.1% in Q3 2007. “The improvement in German prices may arise as a result of limited new supply in the first half of 2007, new construction permits for residential buildings in Germany were over 50% lower than during the corresponding period of 2006,” added Bailey.

Non-European markets
Residential property price growth of 14.4% has put South Africa at third on Knight Frank’s table, as demand for coastal property remains strong. Price growth is ranging from 9% in Johannesburg, to 24% in Bloemfontein. Prices are expected to slow next year as the National Credit Act which came into force in June places stricter conditions on mortgage lending in the country.

Singapore (2nd) continues its positive growth, recording price rises of 27.6%, while Australia (10.3%) and New Zealand (11.8%) have shown positive signs. However, growth has slowed in New Zealand by 2% and there are concerns from financial specialists over the amount of household indebtedness in the country.

The US and Canada
Much has been made about the dire housing market in the US, however the most recent data from the Office of Federal Housing Enterprise Oversight showed that prices have actually risen by 1.8% nationally. Although this is a 0.4% decline on Q2 figures, the states of Utah (12.9%), Wyoming (11.8%), Montana (7.7%), New Mexico (7.4%), and Washington (7%) have all performed strongly.

Canada’s economy continues to prosper despite its neighbour’s financial problems. Canada (7th) realised property price growth of 11.7% in the third quarter of this year. The strongest markets were in Yukon (22%) and Alberta (20%). Knight Frank noted that the country’s major cities recorded a lower rate of growth than the national average.

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