Are world property prices around the globe rising or falling since COVID-19?
A FALL in property prices around Australia – and indeed the world – was expected by many due to COVID-19, but the doomsday predictions haven’t come to fruition.
There have been some falls, but in many cases prices are actually rising, and in some countries they’re booming.
What’s clear is that, on the whole, property markets around the globe have remained fairly resilient during the pandemic.
We’ll get to why soon, but first let’s look at the state of play in Australia and around the world.
What has happened to property prices in Australia?
Around the start of the pandemic some ‘experts’ in Australia were forecasting property price falls of up to 40%.
But now a housing boom is predicted for this year, with some predictions of double-digit growth.
The latest CoreLogic data shows Australian home values have now reached a fresh record high, and surpassed pre-COVID levels by 1%, with the company’s national home value index 0.7% higher than the last peak in October 2017.
Dwelling values continue to rise month-on-month, with January recording a 0.9% increase.
Knight Frank’s Head of Residential Research Australia Michelle Ciesielski says there is strong momentum building across most Australian property markets, with much of the new stock built in past years being absorbed, and a very shallow pipeline of new construction.
“As economic stimulus further eases at the end of the first quarter of 2021, this may create some small pockets of distressed selling, but thus far, as a result of the historic low interest rate environment, finance lending commitments have grown significantly with a large portion of first home buyers and investors returning to the market.”
Knight Frank Research forecasts residential prices to grow the most in Darwin (9%), Perth (8%), Brisbane (6%) and Canberra (6%) in 2021 off-the-back of resilient commodity prices and increased government activities.
Lifestyle markets are also predicted to perform well, such as Hobart (5%) and Adelaide (5%), with Australia’s two largest cities of Sydney and Melbourne expected to record 4% and 2% growth respectively by the end of 2021.
What is happening to property prices in other countries?
Compared to some other countries, Australia’s growth in property prices is modest to date.
The most recent Knight Frank Global Residential Cities Index, which tracks movement in mainstream residential prices across 150 cities worldwide, found price growth in Australia continued to vary across the capital cities.
Australia’s residential annual price growth in the third quarter of 2020 ranged from 13.6% in Hobart with a global ranking of 8th, through to 1.2% annual growth in Perth, which ranked 116th globally, says Ciesielski.
By comparison, the capital of the Philippines, Manila, came in first, recording stellar annual growth of 35%.
“In Turkey, the cities of Izmir (28%), Ankara (27%) and Istanbul (26%) occupy second, third and fourth place respectively, with St Petersburg (19%) completing the top five,” says Ciesielski.
The Knight Frank research found four Canadian cities (Ottawa, Halifax, Montreal and Hamilton) also now sit in the top 20 rankings for residential price growth with growth of 10%-plus. US cities are also rising up the rankings, with Phoenix, Seattle and San Diego making it into the top 20.
The Global Residential Cities Index found annual residential price growth globally was on the way up, rising 4.7% in Q3 2020, up from 4.1% the previous quarter.
Ciesielski says there are many regional variations playing out, which is likely to continue as the pandemic continues and vaccinations are distributed at varying rates.
“As an example, 18 cities registered double-digit annual growth from the third quarter of 2019 to the third quarter of 2020, whilst 23 cities registered price declines,” she says.
“In total, 15 per cent of cities saw prices decline in the year to the third quarter of 2020 with cities in India, Spain and the UAE well represented.”
Prices in just two countries – Rio De Janeiro and Madrid – remained flat, while the rest recorded price growth.
Why haven’t world property prices plummeted?
Record low interest rates, huge fiscal stimulus measures and the release of pent up (largely domestic, due to border closures) demand in the third quarter are behind the uptick in price growth globally, according to Knight Frank’s Global Residential Cities Index report.
Property prices have been resilient in many countries given the record low interest rate environment attracting investors, explains Ciesielski.
“Unlike the global financial crisis where it was economic-led, significant economic stimulus measures have been deployed swiftly to counter-balance the rise in unemployment and support businesses to get through this health pandemic,” she says.
“Many cities, including those in Australia, have experienced a tapering off of new supply being built in recent years, so the housing market is also dealing with pent-up demand from prior to the pandemic.”
Ciesielski notes that growth in Australian residential prices was gaining traction at the start of 2020, heading into the pandemic, with pent-up buyer demand following a tightened lending regime and a shallow number of listings coming to the market.
“This gave Australia the best chance to endure several lockdowns, with most disruption easing by the ideal spring selling season and significant government economic stimulus boosting buyer confidence.”