ONCE thought immune to the worst of property market fluctuations, the world’s financial hubs are feeling the pinch as new data from global cities like Sydney and Hong Kong show they are in the grip of one of the worst property slumps in decades.
The likes of London and New York are also struggling. These global cities were, until recently, considered a safe haven for international investors, a trait that left them largely unscathed by past housing market cycles. A high concentration of well-paying financial jobs also maintained a steady ship. But data from 2018 has some investors worried, showing the plain sailing may be coming to an end – at least temporarily.
According the Bloomberg, Hong Kong home values have seen their longest losing streak since 2008, and prices in London’s outer neighbourhoods fell for the first time since 2011. New York’s famous Manhattan neighbourhood also saw the median condo price fall below US$1 million for the first time in three years.
Prices in Sydney are down 11.1 percent from their 2017 peak, threatening Australia’s run of 27 years without a recession. Nationally, house prices fell 1.3 percent in December making it the largest monthly fall since 1983.
The fall is, in part, due to increased government restrictions and taxes on foreign investors and second-home buyers after an influx of wealthy investors drove the prices up, making them unsustainable for local buyers.
In Sydney, a regulatory crackdown on lending standards and the reluctance of banks to lend as much money to prospective buyers has impacted the market.
“It’s clear that tighter credit availability is acting as a drag on housing demand and impacting adversely on the performance of housing values across most areas of the country,” CoreLogic’s head of research, Tim Lawless, told The Guardian.
The UK government placed a tax on foreign real estate buyers in London as part of a wider plan to increase charges on second homes and properties owned by corporate entities.
A vacancy tax is expected in Hong Kong aimed at preventing wealth investors from stockpiling empty apartments in the world’s most expensive and most competitive property market.
The synchronicity of the slump across major global cities has some economist concerned. A report from the International Monetary Fund, released in November, highlighted the strong correlation between house price synchronicity and global financial conditions. This implies a local occurrence could send shockwaves around the world.
There are a few global cities that affect “the sentiment about risk perception,” Albert Saiz, a professor of urban economics and real estate at the Massachusetts Institute of Technology, told Bloomberg. “If New York and London are catching a cold, the primacy is large enough that they might have an impact on the overall market.”
On top of government attempts to rein in prices and foreign buyers, there are wider economic and political factors at play, from Brexit to the trade slowdown.
In Hong Kong, a combination of both domestic and international factors have slammed the market over the last year.
“Hong Kong’s property market is having its worst combination of fundamentals in 15 years with rising interest rates, a slowing economy and a depreciating Rmb (Renminbi),” analyst Nicole Wong from investment bank CLSA said in a 2018 report.
Add to that a double-digit slide in the local stock market last year and a nine percent fall in the Chinese yuan, and you have a perfect storm for failing confidence.