Sydney set to lead residential price growth in 2020

This is a slight improvement to the 0.1% average seen in 2019 but still well below peak increases of 9.3% in June 2013.

However there are markets which continue to defy the trend.  Lisbon, Sydney, and Moscow are all projected to have growth greater than 6% in 2020, thanks to a combination of low interest rates and increased demand.

Prime residential forecasts 2020 and prime capital value price growth 2019

Europe

Lisbon is forecast to see the highest prime price growth, at between 6% and 8% in 2020. This spike in prices is driven largely by a general lack of supply compared to the level of demand within the city. There is still considerable investment by international buyers, though at a slower rate than previous years. 

Whilst Berlin was the strongest performer in capital value terms in 2019, the outlook for 2020 remains uncertain due to the proposed introduction of a rental cap. This is causing uncertainty in the prime markets which, to date, had been seeing strong interest from end users and investors looking for income returns. If the proposed cap does not come into effect, prices are forecast to continue to rise, but at a lower rate. 

Moscow is projected to see price increases between 6 and 7.9% in 2020. Predominantly a domestic market (more than 97% of transactions are domestic), growth is being driven by a recovering domestic economy and developing mortgage market. Paris and Amsterdam have re-emerged as two of the most attractive investment environments in Europe. Prices are forecast to grow between 4% and 6% in 2020. The relatively safe nature of these markets and low to negative interest rates will also continue to drive investment.

United States

Performance in the US’s most international cities – Los Angeles, Miami and New York – has been subdued as they contended with oversupply in their prime markets.  New York, adjusting to higher mansion tax rates, saw prime sales slip in 2019. The slowdown is expected to continue into 2020, with price increases hovering around 1% and below, though high levels of inventory could pose a buying opportunity for some.

San Francisco, a perennial outlier in terms of high price performance, is forecast to continue its positive growth trend in 2020. Though capital value growth is predicted to only grow between 0% and 1.9%, these figures are stronger than other gateway markets in the US.

Asia Pacific

The uncertainty in the Asia Pacific prime residential markets is forecast to continue in 2020. Sydney is predicted to lead the region with more than 6% capital value growth in 2020. This growth is supported by lower interest rates, increasing immigration, and continued increases in demand. However, the market remains sensitive to global uncertainty and price rises could be reactive to any fluctuations in the market. The ongoing bushfires may be a near-term mitigating factor for the market as they start to impact on national GDP growth. This is not expected to weaken capital city price growth for middle- to upper-priced detached housing or market sentiment, however it will continue to impede growth in rural areas.

According to Paul Craig, CEO, Savills Australia and New Zealand, the Australian residential market is reverting upwards fuelled by lower mortgage rates and unfulfilled demand. We are also seeing green shoots emerge amid falling supply.

Both the ABS and CoreLogic are showing improving price growth, driven by Sydney and Melbourne which is beginning to have a ripple effect into the other State capitals. The most expensive dwellings recorded the largest decline yoy, however are also recording the most rapid recovery.

“At 31 Aug 2019 CoreLogic’s national price change was -5.2%yoy, at 30 Nov 2019 the National price change had improved to +0.1%yoy. Sydney (was -6.9%yoy) improved to +1.6% and Melbourne (was -6.2%yoy) improved to +2.2%yoy.”

Mr Craig went on to say that clearance rates are increasing to now circa 70% from circa 40% a year ago. Apartment prices are yet to benefit from house price appreciation however. Issues around density, overbuilding and structural issues are meaning buyers remain cautious.

“The RBA and APRA will become concerned as house prices approach 2017 highs (expected in May 2020) and we could see the reapplication of macro-prudential measures to curb house prices and address affordability issues.”

According to Chris Orr, Director, Residential at Savills Australia, “Luxury property in Sydney’s key markets have definitely bounced back. In fact we’re seeing record sale values in some areas right now. 

“Sydney overall has recovered anywhere from 5-7% in blue-chip areas however there are still some local markets where there is an oversupply of apartments which has negatively impacted prices. 

“Australia as a whole, is considered a growth market at the moment given our recent financial regulations having changed for the better and new re-elected Government which is focused on maintaining a secure economy,” he said.

Singapore and Tokyo are proving to be stable markets in a region which seems beset by continuing uncertainty. Despite the demographic challenges facing Japanese markets, Tokyo consistently performs well economically. Within the residential market, the luxury segment continues to see growth. The prime sales market in Singapore had a strong 2019, benefiting from rising affluence among local residents and international buyer interest. 

Mainland Chinese cities are forecast to record positive growth in 2020, but at rates well below the double digit annual growth recorded between 2013 and 2017. While Beijing and Shenzhen are predicted to see modest growth, around 1%, prices in Shanghai are projected to be between 2% and 3.9%, while Guangzhou and Hangzhou are projected to grow upwards of between 4% and 5.9%. 

In Hong Kong, popular unrest and the US-China trade war will continue to take a toll on the prime residential market. For 2020, there is a predicted small decrease for luxury residential prices. As of 15 December 2019, a tentative trade deal between the US and China was agreed which should lessen some of the strain on prime residential markets not only in Hong Kong but also in mainland China.

Middle East and Africa

In Dubai, oversupply is continuing to have a stifling effect on price growth, with 2020 values forecast to decline between 2% and 3.9% from 2019. A new government committee to monitor new supply will also help in regulating new launches throughout 2020 and could assist in reducing price declines across the city.

Cape Town has faced a slowdown in activity and a correction in prices, particularly at the top end of the market, which is expected to begin to stabilise in 2020. The combination of reduced foreign buying and increased emigration is resulting in oversupply weighing on prices. 

“Uncertainty impacted the global property sector through 2019 and the prime residential sector was no exception,” said Sophie Chick, head of Savills World Research. “While the outlook for 2020 is generally more positive, price growth in prime residential markets is still expected to be modest across many global cities.

“Uncertainty is just one of many factors influencing prime residential markets and local factors are often the most significant driver of values, tax changes and government policy being prime examples. Fundamentally, the balance between supply and demand remains the key driver of values and largest growth will be seen in cities where supply is not keeping pace with demand.”

FURTHER INFORMATION

Read more: Impacts: Global prime residential forecasts 2020