European cities back on top, says Knight Frank

Published 07th Jun 2011

Prime Asian hub cities such as Hong Kong, Singapore and Shanghai may have dominated global real estate growth in the past few years, but it seems that wealthy overseas property investors are now turning their eyes back towards the major European capitals. Knight Frank's first ever Global Prime Cities Price Index came out with a surprising winner in the growth stakes yesterday - Paris, whose restricted local property supply, combined with low interest rates and growing overseas investor interest, has resulted in a 22% price growth in the year to March 2011.

Whilst government measures in China particularly to restrict property price growth to a sustainable level have discouraged wealthy foreign buyers, the more liberal, and equally commercially viable, property markets of Paris and London are back in investors' sights again. Equally, the necessity to provide social housing in both these cities is restricting supply of the luxury developments investors crave, says Knight Frank's head of Residential Research, Liam Bailey.

"In Paris's case, its strong performance can be attributed to burgeoning demand set against a backdrop of tight supply", says Bailey. "Like London, supply is hindered by a paucity of new development as the proportion of units allocated to social housing often makes luxury units unviable." Prime central London prices experienced a more restrained, but still positive growth of 3.5%, while St Petersburg offered similar value growth at 8.1% for Q1 2011.

Bailey commented that the significant price growth rates of these cities, when compared to the stalling values of their wider domestic markets, was mainly due to the high concentration of interest from wealthy buyers in the Middle East and Asia, which was offsetting the diminished local demand caused by the recession. "Governed less by affordability and macro-economics and more by international demand as well as fluctuations in supply and changing tax rules, these cities compete at a different level in attracting the world’s wealthy elite", he said.

"The top end of the London and Paris markets, for example, are now sectors which appeal to wealthy international purchasers as much as to the domestic rich, meaning their price performance is capped by global economic and wealth trends as much as by national factors.”

Source: ' TMC '

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