Prime global cities in the 'old world' have outperformed their 'new world' counterparts in the latest Savills World Cities Review. Looking back at the final six months of 2011, the firm revealed property prices in destinations it classes as old world - London, New York, Paris, Sydney and Tokyo - increased by 1.4 per cent. In comparison, its new world locations - Moscow, Mumbai, Shanghai, Hong Kong and Singapore - recorded a 0.7 per cent rise in capital values over the second half of last year. Interestingly, however, rental growth exceeded price appreciation in all markets, with the established destinations posting a 2.8 per cent hike in leasing charges, while the newer cities saw rents rise by 1.8 per cent.
The highest yields on prime residential properties can be found in New York, where they stand at 6.9 per cent, while Paris became the most expensive place in which to rent high-end real estate. Yolande Barnes, head of Savills residential research, explained strong rental growth is a sign of "healthy market fundamentals" when assessed in terms of demand for accommodation. "The strong occupier demand in these cities and the relatively low capital values of Paris, London and New York (particularly when compared to Hong Kong) make them look fairly valued for investors - especially New York, which ranks among the cheapest world-class cities to buy in," Ms Barnes added.
One of the main factors behind the resurgence of the old-world destinations in the second half of 2011 was investors' desire to purchase safe-haven assets. Savills acknowledged price appreciation in the new-world locations is generally "more spectacular", but this is combined with greater volatility than that experienced in more established cities around the globe. Ms Barnes predicted this flow of money into old-world metropolises will continue during 2012. "There is now clear evidence that the high performance, which saw new-world markets grow by an average of 95.4 per cent in the five years to June 2011, comes at the price of higher volatility.
"It is ironic, then, that wealth generation in the new world has created a flow of investment activity from East to West in search of wealth-preserving safe havens and this is now underpinning values in the world's most established, old world-class city markets," she commented. Although Hong Kong remains the most expensive place on the planet in which to make a real estate investment, many of the other markets surveyed by Savills have been gaining on the eastern destination. Paris, Moscow, Singapore and New York are all in the ascendancy, posting growth of 5.9 per cent, 4.1 per cent, 3.3 per cent and 2 per cent respectively in the six months from June 2011 to the end of the year. London, meanwhile, is the second most expensive city in which to purchase property and registered price appreciation of one per cent in the same period. By contrast, Hong Kong saw 3.4 per cent wiped off the value of its prime real estate assets.
The billionaire property sector is also helping support cities often considered to be safe havens in times of economic turmoil, with Savills revealing New York, London and Paris all saw the value of this asset class climb in the second half of 2011. In the US city, this was particularly pronounced, with price growth of 17 per cent recorded thanks to an influx of overseas investors from nations such as Russia, Argentina, China and Brazil. Although falls were noted in Hong Kong's high-end market - where values were down 5.9 per cent between June and December last year - this is not representative of all the new-world destinations surveyed by Savills. The worth of billionaire properties in Singapore appreciated by 14 per cent in this timeframe, putting the city in second place behind New York in terms of its capital growth performance.
- Tuesday 29 May 2012