PRIME GLOBAL FORECAST2019

RESEARCH

2 RESEARCH KNIGHT FRANK

-12

-9

-6

-3

0

3

6

9

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100

120

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201

8 Q1

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7 Q3

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5 Q3

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201

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3 Q3

201

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1 Q3

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8 Q3

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200

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200

6 Q3

200

6 Q1

12-month % change Prime Global Cities Index*

FIGURE 1

Prime price performance Indexed, 100 = Q1 2006 vs.12-month % change

Knight Frank’s Prime Global Cities Index is still rising but its rate of growth is slowing

Why? ( 1 ) ( 2 ) ( 3 ) ( 4 )

Property market

regulations

Rising cost of finance

Strong rates of supply (in

some markets)

Geopolitical landscape

(trade disputes, Brexit, Emerging Market volatility)

A NEW CHAPTER The economic landscape is changing as monetary policy normalises and there are geopolitical jitters, but with risk comes opportunity.

According to our Prime Global Cities Index, which tracks the movement in prime prices across 43 cities worldwide, luxury residential prices are now rising at their slowest rate since 2012. The proliferation of property market regulations, the rising cost of finance, uncertainty surrounding Brexit and in some markets, a high volume of new supply, is weighing on prime prices.

More muted growth is the main story behind our 2019 forecast. In 2018, the gap in annual price growth between the strongest and weakest-performing markets will end the year at 25 percentage points, in 2019, we forecast this figure will shrink to 16 points as the outliers start to converge.

Of the 15 cities that we forecast, the key European cities of Madrid, Berlin and Paris, lead our forecast for 2019 with growth of 6%. Still positive, but marginally down on 2018, the normalisation of monetary policy, weaker economic growth and a fragile political landscape post-Brexit will influence demand, but the relative value of these cities remain a key driver.

Markets that have been the recipients of new macro-prudential measures in 2018, such as Hong Kong and Singapore, will slip down the rankings as buyers and developers adjust to the new taxes. Vancouver, which also falls into this bracket, is the exception to the rule. Our weakest prime market in 2018, largely as a result of hikes to its foreign buyer tax and stamp duty in early 2018, Vancouver is expected to see prime prices stabilise in

2019 as local buyers start to identify buying opportunities.

Of the 15 cities, Sydney, London and New York sit mid-table with forecasts of 0%-2% growth. A lack of new supply is supporting Sydney’s prime market. In London, changes to stamp duty have

now been fully absorbed, suggesting activity could strengthen once political uncertainty in relation to Brexit starts to recede. In New York, economic growth and wealth creation are starting to cancel out the high completion rates observed in the prime market over the last few years.

Source: Knight Frank Research

3 RESEARCH KNIGHT FRANK

FIGURE 2Prime price performance over the last decade Ranked by 10-year % change

PROPERTY REGULATIONS IN 2018

Knight Frank’s analysts provide their prime price forecast for 2019, taking account of the latest economic indicators, supply, demand and sales trends

6.0%MADRID

6.0%PARIS

1.0%GENEVA

6.0%BERLIN

-2.4%DUBAI -5.0%

MUMBAI

-10.0%HONG KONG

2.0%SYDNEY

1.0%MELBOURNE

0.0%SINGAPORE

1.0%LONDON

0.0%NEW YORK

2.0%LOS ANGELES

3.0%VANCOUVER

5.0%MIAMI

PRIME GLOBAL FORECAST 2019Vancouver: 20% tax on foreign buyers and higher stamp duty

Singapore: Additional Buyer Stamp Duty increased for foreign buyers and developers

Hong Kong: Vacancy tax for developers with apartments unsold for 6 months+ (proposed)

New Zealand: Ban on overseas buyers purchasing existing homes (can still purchase new-build properties)

Malaysia: Stamp duty increased

Hong Kong11.4%

Hong Kong39.4%

London33.7%

London

Los Angeles33.4%

Los Angeles29.1%

Mumbai28.5%

Mumbai8.0%

Paris26.3%

Paris7.9%

Berlin47.6%

Berlin*118.3%

Vancouver52.7%

Vancouver101.5%

Miami49.9%

Miami30.0%

Sydney58.7%

Sydney60.0%

Melbourne46.2%

Melbourne58.8%

-2.2%Madrid39.5%

Madrid25.6%

New York15.2%

New York17.2%

Geneva

Geneva

-17.4%

16.9%

Singapore

-2.0%Singapore

19.8%24.8%

Dubai

Dubai*

1.3%

*Data corresponds to Q1 2009-Q3 2018

RATE RISES IN 2018

01 Jan 2018 30 Nov 2018

0 5 10 15 20 25

HONG KONG

TURKEY

CANADA

UK

US

0 5 10 15 20 25

HONGKONG

TURKEYCANADAUKUS

2.25

0.50 1.00 8.00

24.00

1.75

2.501.750.75

1.50

01 Jan 2018

30 Nov 2018

HONG KONG

TURKEY

CANADA

US

UK

01 Jan 2018

30 Nov 2018

Base Rate (%)

Five-year % change (Q3 2013- Q3 2018)

10-year % change (Q3 2008-Q3 2018)

Berlin

Dubai

Geneva

Hong Kong

London

Los Angeles

Madrid

Melbourne

Miami

Mumbai

New York

Paris

Singapore

Sydney

Vancouver

Rise slightly

Rise significantly

Remain the same

Fall slightly

PRIMESALES

PRIMEDEMAND

PRIMESUPPLY

FUTURE DIRECTIONHow will demand, supply and sales volumes change in 2019?

RESIDENTIAL RESEARCHPRIME GLOBAL FORECAST 2019

UK: Foreign buyer SDLT consultation starts Jan 2019. UK leaves EU on 29 March 2019.

Dubai: New five to 10-year investment visas and five-year retirement visa for 55 yrs+.

Mumbai: Developer tax on unsold inventory.

Hong Kong: Stamp duties unlikely to change but loan-to-value ratios could be relaxed.

US: The full implications of State and Local Tax (SALT) deductions will be understood (Apr 2019 tax deadline).

EVENTS 2019

OPPORTUNITIES & DRIVERS

RESIDENTIAL RESEARCHPRIME GLOBAL FORECAST 2019

RISK MONITOR

5KNIGHT FRANK RESEARCH

TOP RISKS BY WORLD REGION

Europe1. Change in national

government

2. Brexit

Asia Pacific1. Change to property

market regulations

2. Local economic slowdown

North America1. Global trade

disputes

2. Oversupply of luxury homes

Middle East1. Commodity prices

2. US Federal Reserve rate hikes

CHANGES TO PROPERTY MARKET REGULATIONS

GLOBAL ECONOMIC SLOWDOWN

LOCAL ECONOMIC SLOWDOWN

GLOBAL TRADE DISPUTES

CURRENCY VOLATILITY

CHANGE IN GOVERNMENT

GEOPOLITICAL CRISES

COMMODITY PRICES

EMERGING MARKET VOLATILITY

OVERSUPPLY OF LUXURY HOMES

US FED RESERVE RATE RISE/S

BREXIT

How important will the following factors be to your city’s prime residential market in 2019?

Our global research teams share their views as to which factor or event, assuming it were to occur, would influence their luxury market the most.

The score reflects the average for all 15 cities (high = most important, low = least important).

Below we highlight what motivates prime buyers and what is fuelling demand globally

Wealth creation hotspotsThe number of high net worth individuals with US$5m+ in net assets is forecast to rise by 43% to 3.6 million by 2022, according to Knight Frank’s Wealth Report. Asia is forecast to see a 61% increase over the same period.

Value still to be foundFor some, where currency and price performance combine, discounts exist. A Euro and USD buyer purchasing in prime central London in Q3 2018 have seen a 29% and 25% discount compared with the market’s peak in August 2015.

Lifestyle remains a key motivator✔ Security ✔ Education ✔ Tax

Taking stockThe extent to which prime markets are influenced by stocks, shares and commodities, in particular oil, varies globally. There is a close correlation between the Hang Seng Index and Hong Kong’s prime residential market, whilst oil prices are influential in Dubai. Knowledge of local drivers is critical.

9

9

1010

9

9

8

8

8

8

75

Source: Knight Frank Research

5

6

3

42

Robust global economic forecastThe IMF forecasts 3.7% growth in 2019 and 2020.

1

The world is getting smaller and property remains highly rated asset classIn 2017, 32% of all commercial and residential transactions (by volume) involved cross-border purchases, up from 25% during 2009-2011 (Real Capital Analytics).

UK Housing Market Forecast - November 2018

RESEARCH

UK RESIDENTIAL MARKET FORECAST 2018

FOR RESEARCH ENQUIRIES:

Kate Everett-Allen Global Residential Research +44 20 7167 2497 kate.everett-allen@knightfrank.com

Liam Bailey Global Head of Research +44 20 7861 5133 liam.bailey@knightfrank.com

Knight Frank Research Reports are available at KnightFrank.com/Research

Important Notice

© Knight Frank LLP 2018 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

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TRENDS TO MONITOR Knowing what to track, and when to act can be the difference between a low or high return on your investment.

Which buyers were responsible for the largest rise in enquiries in your city in 2018? Selected cities

NEW BUYER TRENDS

Astrid Recaldin International PR Manager +44 20 7861 1182 astrid.recaldin@knightfrank.com

MEDIA ENQUIRIES:

4 Detachment of ultra-primeThe US$25m+ market saw a total of 155 transactions in six leading urban markets in the 12-months to August 2018, up 13% year-on-year. We expect more cities to enter this select club with San Francisco, Chicago, Dallas, Beijing and Shanghai all vying for contention.

5 Greater synchronicityThe property cycles of first-tier world cities are more in sync as their financial markets have become more integrated. Low interest rates, greater institutional investment and rising wealth have left their mark on most prime markets but it also means policy responses in one market may have broader ramifications globally.

6 Multi-tiered marketsA city’s housing market is far from homogenous. Whether driven by policy, supply or demand, we are seeing stronger mainstream sectors in some cities (Hong Kong, London) and stronger prime markets in others (Sydney). The divergent performance of different market tiers will become more evident as affordability constraints deepen.

Market fundamentals such as demand and supply indicators as well as political stability, quality of life and accessibility are on the basic checklist for most prime buyers. Below, we go one step further to highlight some of the trends we think deserve closer attention over the next year:

1 Follow the techThe knowledge economy – universities, start-up industries and technology parks – will be key drivers of future growth.

2 USD all powerful?Although USD-denominated buyers are enjoying stronger purchasing power abroad, we’ve yet to see a strong flow of outbound capital into prime residential markets. 2019 may be the year USD buyers increase their market share, or it may be we see it being invested closer to home.

3 Demographics dictateIn established western markets, non-traditional real estate sectors will be under the spotlight – student accommodation, retirement living and build-to-rent will outperform the wider market.

PARISMiddle East, US, China

DUBAIEurope, US,

China

MADRIDFrance,

Germany, Middle East

SYDNEYExpats

(with USD)

SINGAPOREChina, Australia,

SE Asia