The Citi Private Bank report commissioned from Knight Frank provides a fascinating snap-shot of global property markets, and relative performance in the fourth quarter of 2008.
The biggest falls in residential property prices were in Hong Kong (-26.8%), Home Counties (-19.4%, the region surrounding London), London (-16.9%) and Dubai (-19.1%).
But the fall in the fourth quarter was insufficient to totally wipe out annual property price gains in three cities: Moscow (+13.1%), Shanghai (+5.2%) and also Dubai (+10.8%). Aside from Dubai the other property markets that slumped in the fourth quarter were all down for the year: Hong Kong (-24.5%), Home Counties (-10.2%) and London (-9.4%).
[The report asks] whether the downturn is leading to a simple repricing of assets that had become overvalued through the late boom period, or whether something more fundamental has occurred in the global economy that will mean prime market pricing will be further suppressed and take a long time to recover.
Knight Frank says the evidence from London suggests a simple repricing, now aided by the devaluation of sterling. By early 2009, the 30 per cent discounts being offered triggered a rally in market activity and allied to a 20 per cent decline in sterling against the major world currencies, offered the potential of savings up to 50 per cent on peak prices for international buyers.
‘The response has been dramatic’, says the agent without being too specific. That could mean two clients a week instead of one or none at all.
Estate agents are legendary for their optimism and spin. This sort of argument suggests buyers will appear from nowhere with money to burn. It is of course complete nonsense in the middle of the most serious financial crisis since the Great Crash of 1929.
In real estate markets downward plunges in valuations are almost always followed by long period of low prices. The 1991-2 slump in London property was followed by four years in which prices hardly moved. Arguably the global financial recession this year is an even worse climate for property sales.
Against that background the idea that a simple re-pricing of global real estate is happening looks a bit thin, not to say obviously wrong. The world’s financial system destroyed $50 trillion of investment wealth last year, and that is loss of money is likely to have had a damaging impact on investor psychology if not their pockets.
Nobody is going to be rushing back into buying property. Prices could well decline still further, after all.