Shanghai
It is clear the future prosperity of Shanghai as a financial centre is already fully factored into real estate values, which have grown substantially ahead of rents since the millennium.
Many believe China will have to continue to wean itself off its addiction to residential development, shifting to more sustainable consumption models.
Some cooling measures have been introduced and, as a result, Shanghai’s residential market has been turned upside down. The rental market has grown strongly, outperforming capital value growth. This improves investment fundamentals but still leaves a wide gap between rents and capital values, which have started to fall slightly. The capital value of property for the SEU slid by -2.6% in H1 2012.
China’s central bank has twice cut interest rates so far this year. The lending base rate is now 6% and commercial mortgage lenders are lowering rates for first-time buyers.
With manufacturing output and export growth slowing, the government may see support of the residential market as a way to boost the economy. But with affordability tight, any loosening of cooling measures is unlikely to be substantial.
Moscow
Moscow is unusual among the newly emerged economies because the city has attracted substantial levels of investment income.
This is one factor behind the continued increase of capital and rental values. Both achieved growth of well over 5% in the first half of 2012, led mainly by the top end of the market.
The thriving business sector is also a key driver of the market, stimulating demand for rental property, as well as owner-occupied homes. The success of many of the city’s strongest performing firms is closely linked to world commodity values – especially oil. Peaks in global energy prices have underpinned the market since 2009.
Expanding mortgage lending has also helped to fuel price growth, along with a shortage of supply in the prime rental market.
However, upper price bands are more exposed to factors affecting the supply of equity. In the near-term, the recent plateau in commodity prices and the threatened downturn in oil prices may serve to dampen the prime markets.
Sydney
Sydney remains primarily a domestic market, despite its international profile and visitor traffic. Much of this is due to restrictions placed on overseas purchasers.
Both rents and capital values have been growing thanks to the strong Australian economy, although the rate of growth has now slowed. Transaction levels at the top end of the market are low and heavy discounting is being employed to move stock.
Meanwhile, the mainstream market is holding up, benefiting from a buoyant local economy. The city’s underlying restrictions of land availability, due to zoning regulations and limited land release, ensure that land values, and in turn house prices, remain the highest in the country. Capital values were up 3.7% for the SEU in H1 2012.
The Australian economy is particularly resilient and is set to return to surplus before any other developed economy. These solid fundamentals mean that further price growth is anticipated, in line with stable demand over the medium-term. Investors will like this prognosis, alongside substantial yields and strong rental growth.
Mumbai
Despite seeing some of the highest capital growth in recent years of any of the world cities in our survey, Mumbai differs from both Hong Kong and Shanghai as it has also seen substantial and continued rental growth. This growth has been accompanied by higher yields.
However, this previously frenzied activity from buyers now appears to be abating as prices in Mumbai experienced small falls over the six months to June 2012. The value of properties for the SEU fell by -1.7%, although this is after recording an impressive growth of 154% since 2005.
Many buyers are reported to be sitting out the market and waiting to see if there are more price corrections. Inevitably, this has led to a reduction in transaction numbers.
Meanwhile, landlords are taking the opportunity to increase rents, which are now playing catch-up with the spectacular capital value growth Mumbai has seen over the past five years. As a result, the cost of rentals for the SEU continued to increase, rising by 5% in the first half of 2012.
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)