Hong Kong
Capital values in Hong Kong remain buoyed by strong demand for real assets, despite very modest growth in underlying rental values. Government intervention and the tight availability of mortgage loans in 2011 resulted in short-lived price falls. The Hong Kong residential market then saw something of a rebound in the first half of 2012.
Activity picked up after Chinese New Year and mortgage loan availability began easing as competition between banks intensified. Mainstream residential prices are now at record highs.
Demand from mainland China is softening to some degree, but this is being off set by strong domestic demand.
During the first half of 2012, the value of Hong Kong’s SEU properties grew by 7.4%. This constitutes the highest growth in any of our 10 global cities.
London
Unlike the rest of the UK, London property markets “bottomed out” in early 2009. Since then, London has seen a period of intense activity and price growth. Average residential prices for the SEU have now regained their 2007 peak. Higher value markets have been boosted by international investor and “safe haven” demand. As a result, prime central London values are 21% above peak.
Overseas buying is high overall (34% of the market) and has remained committed to the very best central locations, particularly in the new-build sector. Overseas buyers currently account for 70% of new-build sales in prime central London.
Rental growth has been keeping pace with capital growth since 2009, so the investment fundamentals are not stretched. But tax policy changes and uncertainty over the economic outlook has decreased buyer urgency. In the most recent quarter, price growth has therefore slowed everywhere, except at the very top end of the market.
Tokyo
The Tokyo residential market has remained flat over the past three years. Rents have also drifted downwards over the same period. The outlook would not be particularly exciting, except that increased demand for accommodation has been noted in central areas.
As a result, our SEU index is considered to be close to the start of a gradual upswing, driven by Tokyo’s more central wards. These areas are already commanding a rental premium, as well as seeing increased buyer interest.
Domestic occupiers seem to be placing greater importance on the proximity of their home relative to their workplace, following the transport interruptions that occurred after the Great East Japan Earthquake and during a particularly disruptive typhoon season
in 2011.
It is interesting to speculate that Tokyo may be about to see demand patterns more akin to western cities – including a commuting discount and a walkability premium – which could start to change the geography of the city.
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