Prime property prices in key cities fall

The research said that this represents the index’s first quarterly fall since the depths of the global recession. 

Although a milestone, the index’s negative quarterly growth is not surprising. Quarterly price growth has been below 2 per cent since the first quarter 2010 and it averaged only 0.6 per cent in 2011. 

The first three months of 2012 brought with it little new momentum. The euro zone’s debt debacle remained at the forefront of the global economic agenda, several critical elections were on the horizon (Russia, France, Greece) and Asia’s highly-effective cooling measures showed no sign of being relaxed. Against this backdrop some luxury buyers took to the sidelines to observe their market’s trajectory. Despite the overall index’s sluggish performance four prime markets achieved double-digit growth over a 12-month period; Nairobi, Jakarta, Miami and London. Perhaps most surprisingly is the fact that the top-five performing cities were spread across four continents – North America being the only continent to appear twice. 

London and Singapore are proof that there is still a level of resilience in the prime markets with both cities shrugging off the introduction of new stamp duties in the first quarter of 2012. In London both prices and applicant numbers increased despite the stamp duty rise to 7 per cent for individuals buying homes over 2 million euro. 

In Singapore the new 10-per-cent stamp duty for foreign buyers, which was introduced in December 2011, dented demand but not prices according to Nicholas Holt, Knight Frank’s Asia-Pacific Research Director. 

Holt added that prices not only held up but actually increased slightly at the very top end of the Singapore market in the first quarter 2012. This was not only due to fairly resilient domestic demand, but also due to wealthy Chinese, Indonesian and Indian buyers who continued to buy in this segment of the market undeterred by the surtax. 

In its view the overall index will remain subdued in 2012 fluctuating between marginal price falls and rises (with London, Moscow, Jakarta, Nairobi and Singapore expected to be the strongest performers) but it seems unlikely the market is on the cusp of a new deflationary cycle in luxury global house prices. 

The safe-haven argument still resonates. Capital flight will continue to focus on cities with low political risk, transparent legal systems, good security and ideally those with an HNWI-friendly tax regime.