The first half of 2012 has seen a mixed picture for the world’s leading cities. Local economies and local policy changes have come to the fore as key drivers of real estate values.

The cities that have seen the strongest performances in their residential markets have been buoyed by domestic demand
(Hong Kong, Moscow and Sydney) rather than international buyers and investors. Meanwhile, international capital appears to be retreating to the “core” of established world cities due to their long-term investment credentials – namely London and New York.

Some “new world” cities that had begun to see price falls following specific government intervention, or the impact of a slowing global economy, rebounded in H1 2012 (notably Hong Kong, up 7.4% in
H1 2012). The weight of Chinese money continues to push into this city (albeit at a slowing rate), but most of this growth can be attributed to a strengthening local market, aided by increased bank lending.

At the other end of the spectrum, some “old world cities” that had previously appealed because of their safe haven credentials saw price falls at the beginning of 2012, notably Paris (-3.4% H1 2012). Here, the eurozone crisis, coupled with president Hollande’s proposed taxes on the wealthy, weighed on the upper tiers of the Parisian residential market. In London, some prime market activity and price growth slowed in the wake of uncertainty regarding new stamp duty rules that were announced in the March budget.

Between these extremes, the picture is varied. Moscow continued to see value growth (+5.5% in H1 2012) on the back of underlying stock constraints and strong commodity prices, particularly oil. Shanghai saw price falls in the wake of a slowing domestic economy and ongoing cooling measures (-2.6% H1 2012). The first price falls have also been recorded in the previously red-hot Mumbai market (-1.7% H1 2012), while Tokyo remains characteristically stable, recording only minor negative growth (-0.3% H1 2012).

Many cities have seen diverging price growth within different sectors of their own markets, which is disguised by the overall average SEU figure. SEU capital value growth in London (2.8% H1 2012) and New York (1.1% H1 2012) is being tempered by slowing mainstream markets. Meanwhile, the prime markets in these cities have performed well, fuelled by international money looking for investment and a safe haven outside the eurozone in two of the world’s most established cities.

By contrast, price growth in Singapore (1.5% H1 2012) and Sydney (3.7% H1 2012) is being driven by their domestic markets. Additional stamp duty for foreigners is impacting on demand at the top end of the Singapore market, while a strong Australian dollar and foreign buyer restrictions have discouraged inward investment in Sydney, resulting in a dearth of transactions in the city’s prime markets.

View our exclusive World Cities Review video report

Taken from
Insights: World Cities Review Autumn 2012