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What does the high cost residential real estate in developing countries mean for Australia?

Since the Global Financial Crisis has come and gone, many of the world’s one time power players have struggled to get back on their feet financially.

And things only seem to be getting worse – don’t they?

Poor monetary policies and economic management has led to mounting debt in the US and many parts of Europe, giving emerging economies throughout Asia the chance to play catch up and even take the lead in the global economic stakes.

However it’s not just the economies of these nations that are starting to outperform in comparison to their richer cousins, as a new report listing the top ten cities for residential property prices demonstrates.

International estate agent Savills ranks the world’s top ten cities for housing based on its latest World Class Index of premier global residential property markets, and while values have increased across the board by an average of 77 per cent since December 2005, it is in developing countries where the figures really start to get impressive.

There is a stark contrast between the London, Paris, Sydney, New York and Tokyo property markets, where average growth has been in the vicinity of 32% since 2005, and the emerging economies of Shanghai, Singapore, Hong Kong, Moscow and Mumbai, which have increased by an average 123 per cent for the same period.

Continuing to hold top billing, as the most expensive country in which to buy a home, is Hong Kong, where values are currently 107 per cent above the 10 cities index average. This is a massive 63 per cent more expensive than London, which comes in second.

Commenting on the findings, Savills head of residential Research Yolande Barnes, said: “It becomes apparent that the debt induced crisis of 2008 was suffered most by the old world cities and not the new world ones. The biggest old world value rebounds have been experienced in the cities most open to new world investment, notably London and Paris.”

Noting Hong Kong’s first place position head of Savills research in Asia Pacific Simon Smith adds, “With its strategic location in a time zone between Europe and North America, Hong Kong has emerged as one of the world’s elite financial centres, and as a gateway to China has prompted increased capital and talent inflow over the past decade.”

So what does this mean for Australia’s residential property market?

Well according to Barnes, our major cities and Sydney in particular, are likely to attract a bit more attention from prospective Asian buyers as they become increasingly frustrated at the high cost of real estate in their own backyard.

He says, “…old world cities like Tokyo and Sydney are geographically very well placed to benefit from investment from frustrated Chinese and other Far Eastern investors but they will need to open up their markets to such investors to trigger this.”

With our local fortunes so closely tied to those of Asia, it will certainly be interesting to see whether our housing markets become even more appealing than they have already proved to our nearby neighbours. Who knows, maybe Australia’s enticing resources sector won’t be the only thing to boom off the back of interest from these developing economies.

Of course foreigners can’t usually buy established properties and are generally restricted to new or off the plan properties. But it’s likely that our sound economy and safe political environment, together with our relatively more affordable property prices will see more of our foreign neighbours invest in Australian property.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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