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2020 Prime Forecast Risk Monitor Future Trends
Prime Global
knightfrank.com/research
Forecast 2020
Research
P R I M E G LO B A L F O R E C A S T 2 0 2 0
IN SEARCH OF RETURNS
With capital growth in most prime residential markets shrinking in 2019, we set out our
forecast for 2020 and outline the key trends that look set to shape future performance.
KATE EVERETT-ALLEN, INTERNATIONAL RESEARCH
A t the end of 2019, the global
economic landscape looks
prime price growth of 5% in 2020 but for
different reasons. Sound fundamentals
The next grouping can be defined
as steady yet sustainable. Although at
markedly different from that a year ago. – strong demand (domestic and different stages of their market cycles
In 2018, economists predicted 'the new international) and significant regeneration we expect Madrid, Singapore and
normal' – that of higher interest rates – will keep Berlin high in the rankings Melbourne, to register price growth
and more expensive debt – yet it failed to despite the proposed rent cap. In Miami, of 3% in 2020 with international
materialise. Instead, we have seen 144* we expect the city to benefit from the enquiries (Madrid), redirected capital
interest rate cuts globally in the last year, continued momentum from the State and outflows (Singapore) and a lower
with quantitative easing (QE), once an Local Tax (SALT) tax deduction. interest rate environment (Melbourne)
extraordinary measure, now back on the At 4%, Geneva and Sydney are both shoring up demand.
agenda in the US and the Eurozone. seeing prime price growth recover having In Los Angeles, our forecast of 2%
With interest rates remaining lower dipped in recent years. Confidence in both hides a complex picture. Below US$2
for longer, property’s attraction has been residential markets has returned due to million the market is active with strong
reinforced. Yet, at the prime end of the lower interest rates and a limited supply demand for quality properties, above
market, particularly, in the world’s top pipeline. Both cities are also the recipients US$10 million the market is slow, patchy
tier cities, sales volumes largely drifted of significant transport investment; the at best, whilst the mid-segment US$2-
lower during 2019. Leman Express (CEVA) in Geneva and in US$10 million is registering moderate
Prime price growth also stumbled in Sydney, the CBD & South East Light Rail. price appreciation.
2019 across many cities. The Knight Frank
Prime Global Cities Index, which tracks
the movement in prime prices across
Fig 1. Prime price performance
45 cities worldwide, is mirroring global
economic growth. The average annual 12-month % change Prime Global Cities Index*
rate of growth in the year to Q3 2019 was
8 160
1.1%, meaning prime prices are rising at
their slowest rate in a decade (figure 1). 4 140
From the interminably tedious Brexit
0 120
negotiations to the US/China trade
tensions, Hong Kong protests and climate -4 100
change, the level of uncertainty ramped
-8 80
up a gear in 2019. But what about 2020?
-12 60
The Forecast 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Paris leads our prime residential
forecast for 2020 with price growth of
REASONS WHY
7%; economic stability, low interest rates,
constrained prime supply and strong
tenant, as well as second home demand,
will underpin price growth. Home to
1 2 3 4 5
Europe’s largest infrastructure initiative,
Mounting Capital controls Tighter Backlog of Buyers sat on
the Grand Paris Project, as well as the
economic and restraining property market oversupply in the side-lines
2024 Summer Olympics, both events will political risks in outflows regulations some prime waiting to call
key economies markets the bottom of
provide further stimulus.
the market
In second place, sit Berlin and Source Knight Frank Research
Miami, we expect both markets to see
*http://www.centralbanknews.info/p/eas.html 2P R I M E G LO B A L F O R E C A S T 2 0 2 0
Against a tumultuous political
backdrop, we expect Hong Kong’s luxury
segment to see largely static prime prices THE GLOBAL VIEW
(0%) in 2020. Research by our Hong Kong
team shows the Hang Seng Index leads
the mass residential market by three to
1 The global economy slowed in 2019…
six months but luxury prices are largely
resilient with a weak correlation to both (Global GDP growth, %)
GDP and equities. A number of high-end 4.6
4.5 3.9
transactions in The Peak in 2019 would 3.6 3.4
3.0
support this argument. 2.3
1.7 1.7
For Mumbai (-1%) the economic 2018 2019 2020 2018 2019 2020 2018 2019 2020
environment deteriorated in 2019 Global Economy Advanced Economics Emerging Markets &
Developing Economies
influencing market liquidity, this was Source: IMF World Economic Outlook Oct 2019
further exacerbated by an additional
1% stamp duty taking the total to 6%.
We expect prime buyers to remain
2 And prime price growth moderated…
cautious in 2020.
In London, the clarity afforded by (Annual % change)
a Conservative majority in the General 8%
Election should remove some uncertainty 6%
– increasing the likelihood that the UK 4%
will leave the European Union on 31 2%
January. In the short-term, this will pave 0%
the way for the release of some of the Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3 2019
pent-up demand that has built in recent Source: Knight Frank
years, though the extent to which this
translates into transactions will depend
on the size of the pricing expectation gap 3 Yet global wealth is still rising…
between buyers and sellers.
For Dubai (-2%), 2020 marks a
No. of millionaires No. of UHNWIs*
landmark year when it will host Expo 241k
2020. Forecast to attract 25 million 191k 198k
visitors, the city has seen significant
investment in new infrastructure in
18.9m 19.6m 23.4m
the lead up to the event, such as the
2017 2018 2023
expansion of the Metro Line. These
Source: Knight Frank's Wealth Report 2019 * US$30m in net assets excluding primary residence
changes, along with the introduction of
long-term visas of up to 10 years, will
boost prime demand.
4
And the cost of debt remains cheap by
In New York (-3%), we expect lower
historic standards
mortgage rates and strong employment
indicators to start to cancel out the high
Hong Kong Eurozone US UK Canada
completion rates seen in recent years.
6%
Despite sitting at the bottom of
5%
our rankings for 2020, Vancouver’s 4%
-5% decline in prime prices reflects an 3%
improving scenario. Prime prices have 2%
been falling at a rate of 15% per annum 1%
but shrinking inventories, along with 0%
a gradual adjustment to the property 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
market regulations, are seeing a slow Source: Central Banks
recovery in buyer sentiment.
3P R I M E G LO B A L F O R E C A S T 2 0 2 0
A YEAR IN REVIEW
PROPERTY Fig 2. Prime price
performance over the
REGULATIONS last decade Ranked by
10-year % change*
in 2019
BERLIN 145.7%
1-year % change: 6.5%
B E R L I N : A new rent cap has been passed by the
Senate of Berlin but awaits approval by the national
court. The proposed rent cap would exclude all VANCOUVER 85.3%
apartments ready for occupancy after 1 January 2014 1-year % change: -10.2%
SYDNEY 69.8%
1-year % change: 2.6%
DUBAI: The introduction of long-term visas of up to
10 years (via investment in real estate (up to five years) MELBOURNE 64.1%
or for business investment (10 years). Plus, new powers 1-year % change: 2.0%
for Dubai's Real Estate Regulatory Agency (RERA) – to
oversee the development of a comprehensive and
strategic plan for all future real estate projects
LOS ANGELES 53.0%
1-year % change: 0.7%
MIAMI 51.4%
1-year % change: 1.5%
H O N G K O N G : Easing of lending rules for
PARIS 47.1%
first time buyers – now able to borrow HK$8m
1-year % change: 4.2%
(US$1m) with a 10% deposit
HONG KONG 45.8%
1-year % change: -1.3%
SINGAPORE 41.6%
1-year % change: 1.2%
M A D R I D : Reforms to rent laws – rents now
CPI-linked, deposits capped at two months' rents
LONDON 40.9%
1-year % change: -3.9%
MADRID 35.4%
1-year % change: 4.2%
M U M B A I : A reduction in GST rates from 12% to NEW YORK 23.5%
5% on under-construction residential property. A 1% 1-year % change: -4.4%
increase in buyer stamp duty from 5% to 6%
GENEVA 19.6%
1-year % change: 5.6%
MUMBAI 12.7%
1-year % change: 0.8%
DUBAI -7.8%
1-year % change: -3.7%
N E W Y O R K : A rise in the NY State Transfer
Tax and new graduated Mansion Tax for homes
above US$3m+ and revised rental law * Data corresponds to Q3 2009-Q3 2019
4P R I M E G LO B A L F O R E C A S T 2 0 2 0
THE YEAR AHEAD
PRIME GLOBAL FORECAST 2020
Knight Frank’s analysts provide their prime price forecast for 2020, taking
account of the latest economic indicators, supply, demand and sales trends
7.0%
-5.0% Pa r is
1.0%
Va n couver L on d o n* 5.0%
B e rl i n
-3.0% 3.0%
Ne w York* 4.0%
2.0% Ma dr id G e ne va
L o s An gele s -2.0%
0.0%
5.0% D u bai -1.0% Ho ng Ko ng
Miami Mu m bai
3.0%
Si ngapo re
4.0%
S yd ne y
3.0%
Me l bo u r ne
* Manhattan
EVENTS 2020
UK US Dubai Singapore Tokyo
A Budget post the Presidential Expo 2020 – first Possible General 2020 Summer
General Election and Election – 3 November to be held in a Middle Election Olympics
Brexit – by 31 January? Eastern city
FUTURE DIRECTION
How will demand, supply and sales volumes change in 2020?
Rise Significantly Rise Slightly Remain the same Fall Slightly Fall Significantly
PRIME PRIME PRIME PRIME PRIME PRIME PRIME PRIME PRIME
SALES DEMAND SUPPLY SALES DEMAND SUPPLY SALES DEMAND SUPPLY
Berlin Los Angeles New York*
Dubai Madrid Paris
Geneva Melbourne Singapore
Hong Kong Miami Sydney
London Mumbai Vancouver
Source: Knight Frank Research * Manhattan
5P R I M E G LO B A L F O R E C A S T 2 0 2 0
RISK MONITOR TOP RISKS TO
PRIME PROPERTY
In a late-cycle, low-yield environment MARKETS BY
prime buyers are monitoring risk WORLD REGION
carefully – many with a heavy dose of 10
realism. However, where sound demand/ 9
supply fundamentals outweigh short-
term political or regulatory risk many 9 E U R O PE
are identifying opportunities. We asked 1. Change in government
our global research teams to give us their 2. Brexit
take on the biggest risks to their prime 9
residential markets in 2020.
10 = Most influential, 0 = Least influential A SI A
9 1. Change to property
market regulations
GLOBAL ECONOMIC SLOWDOWN 2. Local economic
slowdown
GLOBAL TRADE WAR
8
LOCAL ECONOMIC SLOWDOWN
N O R T H AMERI CA
CHANGES TO PROPERTY
MARKET REGULATIONS 1. Global trade disputes
GEOPOLITICAL CRISES 8 2. Oversupply of luxury
homes slowdown
CHANGE IN GOVERNMENT/
UPCOMING ELECTION
EMERGING MARKET VOLATILITY
8 M I D D L E EAST
OVERSUPPLY OF LUXURY HOMES
1. Commodity prices
CURRENCY INSTABILITY
2. Geopolitical crises
BREXIT 8
US FED RESERVE RATE CHANGES
COMMODITY PRICES 6 A US TRALASIA
1. Global economic
6 slowdown
6 2. Local economic
slowdown
INFRASTRUCTURE OPPORTUNITIES
Key projects 2020-2025
BERLIN GENEVA HONG KONG LONDON MADRID
Brandenburg Airport The Leman Express Two major roads are under Crossrail Line ($18 bn) Madrid Airport
scheduled to open in (CEVA) trainline is due construction: the Tuen expected to open modernisation
October 2020. Plus, to open in December Mun-Chek Lap Kok Link in 2021 (Terminals 1, 2 and 3)
Berlin named as Tesla's 2019, assisting those and the Tuen Mun Western
chosen location for its commuting to Geneva Bypass both connecting to
European factory from France the HKZM Bridge
6P R I M E G LO B A L F O R E C A S T 2 0 2 0
TRENDS TO MONITOR
We outline some of the events, trends and regulations that look set to influence
prime residential markets in the coming years
1 4 7
Golden Visas: Portugal looks Europe’s PRS sector appeals: In a late- Holiday homes targeted: Expect
set to shift the focus of its Golden Visa cycle, low-yield environment, Europe’s greater regulation of the holiday
from property investment to private rented sector has come under homes rental market in those cities
job creation. the spotlight as investors look to cities that attract a high volume
offering connectivity and liquidity. of tourists.
2 5 8
NYLON bounce: Some Brexit clarity Downsizing down under: Sydney Negating negatives: Where
and a cooling of trade tensions ahead and Melbourne are seeing strong negative rates persist (Switzerland,
of the US Presidential Election could demand from downsizers seeking Japan, Eurozone, Sweden), property
see London and New York’s prime easily maintainable properties close to will increasingly appeal as a means
markets spurred on. city centre locations. of generating a return.
3 6 9
Florida in focus: With the SALT A small world: In November 2019, Climate action: Developers and
deductions underlining Florida's Qantas tested its new 19-hour nonstop lenders are reducing their carbon
benign tax structure and with US flight from London to Sydney which footprints and overhauling their
mortgage rates almost at their may be operational by as soon as 2022. commitments to sustainability,
historic low, South Florida is likely to Improved connectivity has the potential whilst ESG principles are being
see demand strengthen. to reshape second home markets. prioritised by institutional investors.
MUMBAI NEW YORK PARIS SYDNEY VANCOUVER
New metro lines, La Guardia Airport Grand Paris Project & CBD & South East The new SkyTrain’s
coastal road, Mumbai Upgrade (US$8 bn) to Summer Olympics 2024 Light Rail (AU$1.5 bn), Millennium Line
Trans Harbour Sea be fully operational by WestConnex road Broadway Extension
Link and opening late 2021 programme (AU$16.8 bn)
of the Navi Mumbai and the Sydney Metro City
International Airport & Southwest (AU$12.5 bn)
7We like questions, if you've Liam Bailey
Prime Global Cities Index
The Prime Global Cities Index is a valuation-based index tracking
the movement in prime residential prices in local currency across
40+ cities worldwide using data from our global research network.
Prime Global got one about our research, Global Head of Research
knightfrank.com/research
The global perspective on prime property and investment
Cities Index
Wealth Report 2019
or would like some property
Q3 2019
+44 20 7861 5133
HEADLINES
Moscow 1 .1 % Seoul 76% Guangzhou
R E C O R D E D T H E I N D E X E S H I G H E ST AV E R AG E A N N UA L P R I M E R E C O R D E D T H E W E A K E ST R AT E O F C I T I E S R E G I ST E R E D R E C O R D E D T H E ST R O N G E ST
R AT E O F A N N UA L P R I C E G R OW T H P R I C E G R OW T H AC R O S S O F A N N UA L P R I C E G R OW T H I N STAT I C O R R I S I N G P R I C E S R AT E O F G R OW T H OV E R T H E
I N T H E Y E A R TO S E P T 2 0 1 9 45 CITIES T H E Y E A R TO S E P T 2 0 1 9 OV E R T H E 1 2- M O N T H P E R I O D F I V E Y E A R S TO S E P T 2 0 1 9 ( 9 2 % )
advice, we would love to hear
A year ago we announced the start
Prime price growth is But not uniformly…
THE WEALTH REPORT 2019
of 'the Great Moderation' in prime
slowing… Average price change to Q3 2019
residential markets. Twelve months
Average annual price change
liam.bailey@knightfrank.com
Russia & CIS
on the slowdown has gathered pace.
5.0%
The change in prime prices for all 45
4.5% Europe
4.0% cities averaged 1.1% in the year to Q3
3.5% Africa
3.0%
2019, down from 3.4% in 2018 and 4.2%
2.5% Asia in 2017.
2.0%
1.5%
Australasia Despite a longer-than-expected
1.0% North America period of loose monetary policy and
0.5%
from you.
0.0% Middle East steady wealth creation, luxury sales
Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
volumes are at their weakest for several
-6%
-4%
-2%
0%
2%
4%
6%
2014 2015 2016 2017 2018 2019
years in many first tier global cities.
Source: The Knight Frank Prime Global Cities Index Source: The Knight Frank Prime Global Cities Index
Slower global economic growth
– the IMF lowered its 2019 forecast
from 3.3% to 3.0% in October – along
with escalating headwinds: US/China
And the outliers are disappearing...
trade relations, Hong Kong’s political
>10% increase 0-10% increase 0-10% decrease >10% decrease tensions, a US presidential election in
100% 2020 and the Brexit conundrum are
influencing buyer sentiment.
80%
60% The results
40% Moscow leads the index this quarter
Kate Everett-Allen
20% with prime prices rising by 11% over
0%
the 12 months to September 2019 due
in part to strengthening demand and
-20%
the completion of a number of high
-40%
end projects in prime areas such as
-60% Ostozhenka and Tverskoy.
Secondary cities in Asia are creeping
Source: The Knight Frank Prime Global Cities Index
back into the top ten including Taipei
Global Residential Research
+44 20 7167 2497
Five-year sales and rental forecast for the
UK Forecast 2020-2024
Luxury Investment Index
UK and prime London property markets
Objects of Desire
Australian Special Edition
Luxury UK Residential
knightfrank.com/research
kate.everett-allen@knightfrank.com
knightfrank.com/research
Investment Index Market Forecast
2020-2024
2019
to
let.
Paddy Dring Astrid Recaldin
sold.
for
let.
sale.
Global Head of Prime Sales International PR Manager
+44 20 7861 1061 +44 20 7861 1182
Report compiled in December 2019 paddy.dring@knightfrank.com astrid.recaldin@knightfrank.com
Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range
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