In 1972, when Chinese premier Zhou Enlai was asked about the impact of the French Revolution during Richard Nixon’s visit to China, he was famously quoted as saying: “It’s too early to say”. Although it’s now widely held that Enlai had misunderstood the question and was referring to events that took place in France in 1968, not the uprising that overthrew the monarchy in 1789-1799, China is renown for taking a long view of history when looking at the future.

However, the country’s recent economic meltdown has certainly got Chinese leaders’ attention. While the government scrambles to try and stop the fallout by getting the country’s larger brokerage companies to establish a fund worth some 120bn yuan to buy shares in the country’s major listed companies – and uses propaganda to convince the Chinese people to hold on their shares for patriotic reasons – the rest of the world sits and waits for the effects of the fallout to hit home.

Australia and New Zealand appear to be particularly concerned about the impact this could have on their property markets, although there seems to be a divide as to which way the sorry saga will pan out. Some fear Chinese investors who have invested in the two countries’ property markets will pull out, leading to a crisis and a drop in prices. Others see things differently: they believe Chinese investors will reconsider investing in stocks, and also in bricks and mortar, across the globe.

As things stand, the Chinese have been investing heavily in both Australia and New Zealand. One of the concerns raised by the Australians is that Chinese investors have been ‘parking’ some of their cash in new developments. In a report in The Sydney Herald in May this year, it was noted Chinese investors and immigrants had bought property for more for than AU$8bn over a 12-month period and due to growing demand it was forecast that another AU$60bn would be pumped into that country’s property market over the next six years. Perhaps the most concerning aspect is that many of these investors aren’t interested in renting out their stock, choosing to shelve the properties so that they remain ‘new’.

Whether the average Chinese investor will now be able to hold on to an asset that isn’t making money remains to be seen, but it’s clear a mass exodus from the Australian property market could prove disastrous for the country’s real estate industry.

 

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IT’S NOT JUST THE CHINESE MAKING HEADLINES

“Would they?” or “wouldn’t they?” were key questions around Europe in July, when Greece called a referendum to decide whether to accept a bailout agreement proposed by the Eurogroup. The no vote won the day and although there was a great deal of talk about Greece being forced to leave the Eurozone, a new agreement was drawn up and accepted by the Greek government in mid-July. Despite the various bailouts worth billions that the Greek government has received, the country is still struggling. The International Monetary Fund’s Global Housing Watch noted that Greece is showing the third-largest correction in house prices since 2007, and estimated that property prices have fallen by 40%. It’s worth remembering that this excludes the luxury Greek market, which, according to those in the know, has remained relatively unscathed.

Georg Petras, partner at Engel & Völkers on Rhodes says, “The financial crisis has had a weaker impact on the price structure of the luxury second-home market on Rhodes than on the market for first homes. Luxury holiday residences did drop in value slightly during the crisis. But prices are now on the rise again, thanks to high demand.”

Prices may be dropping drastically in parts of Europe (Global Housing Watch noted that prices had fallen by 45% in Latvia and by a staggering 70% in the Ukraine), but property prices in the more cosmopolitan cities have held their own. Paris is a prime example. Although prices have fallen in the rest of the country, homes in the capital are still selling for a premium. This market has seen an incredible 37% increase in prices since 2009. However, there is speculation that this will change when the French president, François Hollande, introduces tax increases and cuts property subsidies. Property prices are expected to drop although, as Bernard Cadeau, chairman of Orpi, France’s largest real-estate agency, says, “Everybody in the world wants to buy in Paris.” The scarcity of rented accommodation in the city means that owners will always be able to rent out their homes.

 

INTERNATIONAL CITIES TO WATCH

Although none of the cities listed below are among the world’s top 10, or even get a mention in the top 20 most important cities, a recent Knight Frank reports that their high net-worth individuals (millionaires) and ultra-high net-worth individuals are rising. These cities include:

• Belgrade, Serbia

• Panama City, Panama

• Addis Ababa, Ethiopia

• Yangon, Myanmar

 

LONDON’S A GOOD BET

It’s pretty much the same across the Channel. London property continues to soar and although house prices aren’t dropping in the rest of the UK, they certainly aren’t selling for anything near to those in the nation’s capital. The average price of a home in England is sitting around £295,000. The average price paid for property in London is now £602,000, and asking prices are 9.5% higher than they were this time last year.

The price of property in the capital is raising concerns and steps are being taken to investigate the fact that offshore companies are being used to launder money via the London property market. Transparency International estimates that companies in an offshore secrecy jurisdiction own one in 10 properties in the City of Westminster. Of course, not all of the companies involved are set up as a means to get rid of dirty money. But it’s estimated that £120bn of properties in England and Wales are owned by offshore companies. Steps are being taken to address the problem, with Prime Minister David Cameron announcing that the government will publish a central public land registry of foreign companies, detailing which land they own.

 

MONACO IS STILL EXPENSIVE

The Global Property Guide indicates that Monaco has the most expensive real estate in the world. The price per square metre in this tiny principality is currently sitting around $60,114 – miles ahead of London, which averages out at approximately US $34,531/m2. Hong Kong is third in line with an average price of $22,814/m2, New York comes in fourth place with an average of $18,499/m2, and Paris is in fifth place with an average of $18,415/m2. Cape Town – the only South African city that features in the list – is ranked as the 31st most expensive country, with an average price of $4,214/m2.

 

MOST EXPENSIVE REAL ESTATE PER M2 

1. MONACO $60,114/m2

2. LONDON $34,531/m2

3. HONG KONG $22,814/m2

4. NEW YORK $18,499/m2

5. PARIS $18,415/m2

31. CAPE TOWN $4,214/m2

 

Words: Lea Jacobs