The latest (Q2 2018) Prime Global Cities Index by Knight Frank has reported that prices climbed 2.6% in the year to June 2018, which was the weakest annual rate of growth since Q4 2012.

The decline in the overall index’s performance is not due to a rising number of cities registering an annual decline. Instead, the weaker growth is due to the top performing cities rising more slowly. Last quarter seven cities registered double-digit annual price growth, but in this quarter only three – Guangzhou (11.9%), Singapore (11.5%) and Madrid (10.3%), managed to achieve double-digit annual price growth.

The gap between the strongest and weakest performing city shrunk from 33 to 20 percentage points in the last quarter. The introduction of new, and the strengthening of existing, property market regulations, along with the rising cost of finance and a degree of political uncertainty is resulting in more moderate price growth at the luxury end of the world’s top residential markets.

Asian cities perform strongly…for now
Guangzhou leads the rankings with Beijing (7.3%) and Shanghai (3.3%) in 10th and 22nd place respectively. The recent decision by Chinese authorities to scale back a major housing subsidy programme is expected to dent sales volumes in second and third tier cities, but prime prices in first tier cities are expected to see steady growth in the coming year.

However, for nearly two years now China has been working on measures to cool down the property market, with at least 90 introduced so far this year. Some cities have swiftly implemented a slew of measures. Shenzhen, for example, recently announced that it would restrict property owners from selling their flats for three years after purchase, ban purchases by companies and organisations to plug a loophole used to skirt current restrictions, and tighten loan policy for divorcees of less than two years amid a growing number of people using divorce to secure more housing loans.

Singapore (11.5%) has accelerated up the annual rankings and now sits in second place. High land bids by developers have translated into higher new-build values. In an attempt to curb price inflation, the authorities in Singapore announced further increases to the Additional Buyer Stamp Duty (ABSD) in July this year. This includes higher rates for foreign buyers (20%) and for developers (30%) as well as tighter lending rules.

Hong Kong has also introduced a new cooling measure – a new vacancy tax. Under the new rules, developers will incur a penalty, 200% of the annual rental value, if new apartments are left unsold and empty for six months or more.

Home price deflation in Hong Kong is likely to set in by December this year in the form of a single-digit drop month on month, while a sharper 10% decline is possible in the first quarter of 2019 (compared to Q4 2018), according to Lee Shu-kam, associate professor in economics and finance at Hong Kong Shue Yan University. He told the South China Morning Post: “Home prices may start to fall at the end of the year when market sentiment reverses amid a downbeat stock market and higher interest rates. Fears will grow in the market with more homeowners listing their properties.”

North America becoming more divided
In the US, San Francisco (9.5%) and Los Angeles (7.8%) are the frontrunners. The US economy is firing on all cylinders and housing demand has been boosted by a buoyant labour market.

However, not far north of the booming California housing market, Vancouver property prices are falling faster than every other city on the index, (excluding Stockholm), with prices slumping by 6.2% over the past 12 months. Those price falls appear to be accelerating, falling by 3.5% in Q2 alone.

Home sales in the city fell to their lowest level in nearly 30 years in July. According to data from the Real Estate Board of Greater Vancouver there were 2,070 property sales in total in July, down 30% from July 2017, down 15% from June of this year, and nearly 30% below the 10-year average for the month of July.

As has happened in the UK, tighter mortgage rules and higher taxes to deter property investors have been introduced in Canada with the specific goal of slowing down the most unaffordable property markets, and the measures appear to be working.

Strong markets go into reverse
Elsewhere, Cape Town and Dublin stand out as two prime markets where luxury price growth has softened in the last six months but for very different reasons.

The rate of annual growth in Cape Town has halved in the last six months from 19.9% to 8.2%. The citywide drought and the uncertainty over the process of land expropriation without compensation have weakened sales activity. However, six weeks of solid rainfall and new land guidance from the South African Government has mitigated this concern and sales volumes are strengthening again.

By contrast in Dublin (0%), tighter lending rules, rising luxury supply and a reduction in sterling-denominated buyers is leading to more moderate price appreciation.