Luxury home prices to climb 5.7% this year: Knight Frank

Mar 01, 2022

Prices of luxury homes are expected to rise 5.7 per cent in 2022 across 28 prime residential markets, according to a forecast by real estate consultancy Knight Frank - a "subdued" performance after 2021's blistering pace.

Cities such as Dubai, Miami and Zurich are expected to lead the pack, with prices poised to jump 10 per cent to 12 per cent this year.

In the Asia Pacific, Seoul and Sydney are both expected to see increases of 9 per cent, and Auckland, 7 per cent.

"Asian cities are expected to trail slightly in 2022, but with cities such as Singapore (+2 per cent) already announcing higher rates of stamp duty, some investors may take heart that any significant move in terms of cooling measures may now be in the rear-view mirror," the report said.

In 2021, the Knight Frank Prime International Residential Index (PIRI 100) saw the biggest annual increase since the index was launched in 2008 as the index rose 8.4 per cent, up from slightly under 2 per cent the prior year.

The index tracks 100 luxury residential markets, of which 35 per cent saw prices shoot up by 10 per cent or higher in 2021, with demand fuelled by factors such as low interest rates, a shortage of prime stock, fatter paychecks, increased savings during the pandemic, the buoyant stock market performance as well as investors seeking an inflation hedge. Only seven cities registered price decreases.

Dubai was in pole position as prime prices jumped by over 44 per cent, while Russia was in second place at over 42 per cent and San Diego (28.3 per cent) rounded off the top three.

Singapore's luxury residential prices went up 3.5 per cent, according to the report. The sharp acceleration prompted Singapore's government to dole out fresh property cooling measures in December 2021 but this may not deter buyers. "Despite higher rates of stamp duty for those purchasing second homes, the absence of capital gains tax and any wealth tax in the city-state will continue to act as a draw," the report said.

The Asia Pacific as a region saw luxury home prices go up by 7.5 per cent, although this was largely due to Australasia. Stripping out Australasia, prices in Asia went up 5.5 per cent.

Space has also emerged a central theme during the pandemic. "The concern is that this quest for room to breathe comes at a time when new homes are shrinking. With a significant lag in construction, larger homes are likely to generate a premium for some time to come," Knight Frank warned.

Meanwhile, the US Federal Reserve's move to hike interest rates - likely by this month - is seen as possibly having some effect in softening buyer sentiment.

For buyers scouring for opportunities, the report also singled out locations which should rack up "stronger-than-average capital growth" in the next five years.

Down Under, Byron Bay in northern New South Wales is seen as delivering price gains of 30-35 per cent as the number of new homes being built over the last few decades have been limited by Byron Bay's environmentally-conscious council. This is starting to change owing to the supply shortage, especially as the pandemic prompted city dwellers to pack their bags in search of greener pastures.

London's Knightsbridge made the cut with expected price gains of 25-30 per cent in five years, as did Austin, Texas with expectated gains of 20-30 per cent.

Also making the list is Singapore's Orchard Road, where Knight Frank sees prices going up 10-15 per cent on the back of a gradual relaxation of travel curbs, government plans to give the iconic shoping belt a reboot as well as two new mrt stations.

Another trend highlighted is the difference in the way ultra high net worth individuals (UHNWI) under the age of 40 invest in property vis-a-vis their parents.

These buyers tend to hold assets across geographies and prefer service provision, open space, amenities as well as room for entertaining. Knight Frank also expects more tokenisation and digital ownership of property gaining traction thanks to this generation.

"This generation is more global, more tech savvy and places greater emphasis on wellbeing - their own, that of their families and that of the environment," the report said.

Knight Frank estimates there are 129,557 UHNWIs who are self-made and under the age of 40 - roughly 20 per cent of the total population. The bulk are in North America, at 44,751, although Asia is not far behind at 44,565.

Tech savvy, young UHNWIs in Singapore "are looking beyond the traditionally sought-after Good Class Bungalows," said Nicholas Keong of Knight Frank's Singapore Private Office. "They want flexibility to build their own home to suit their lifestyle. They often include smart technology, a focus on energy efficiency and connectivity, both digital and physical."

In addition, the report looked at affordability when it comes to luxury accomodation. US$1 million will buy you just 15 square metres (sq m) of prime space in glitzy Monaco, while in Singapore, the same amount will secure you some 35 sq m. The jump in prices in the Republic has seen Singapore narrow the gap with New York, which is in fourth spot at about 33 sq m.

Incidentally, Monaco also topped the list for the entry point for the top 1 per cent of homes by value, with buyers having to splash out US$34 million. Beijing was in second spot at US$7.6 million, and Singapore wasn't far behind at US$7.3 million.