March 26, 2007

LONDON: Up 22%
PARIS: Up 7$
DUBAI: Up 14%

Property goes up, up, up in global cities

Cross-border investors are adding to real estate boom

By Neo Hui Min, Straits Times Europe Bureau

GREAT DEMAND: Prices of homes in suburbs such as South Kensington have leapt due to a housing shortage.

HIGH PRICES: Rates for areas in Paris such as the upmarket business district of La Defense have been skyrocketing.

NO SIGN OF SLOWING: Investors are pumping money into Dubai, where rents have soared. -- AFP

BERNE - WEBSITE developer Mark Holmes makes 30,000 (S$90,000) a year, but finds a home in London beyond his reach.

'It's just too expensive. It would take me years to save enough for a deposit if I wanted a flat of a decent size, and even then I'd probably have to take out a 30-year mortgage,' said the 28-year-old.

For many Londoners, owning their own home is a distant dream as property prices continue marching skywards.

British mortgage lenders and analysts have been warning of a price adjustment in soaring property prices over the past few years, but the latest studies still point to not only growth, but a housing shortage.

While the US property market has been shaken by recent reports of an increasing number of bad mortgage loans, property prices across many leading world cities continue to rise.

In some cities, the per-square-metre rates have doubled in just a few years.

In Europe, the eastern regions have been the most profitable for investors in the past year, while in Asia property prices are on an increase in many cities.

Singapore is currently riding a wave of property price recovery, with new prices reaching far above even the $2,000-per-square-foot levels seen around prime Orchard Road at the peak of the last property boom in 1996.

Tokyo is rebounding after a decade of prices being trapped in a downward spiral while an uptrend in property prices continues in Shenzhen and Beijing.

In Dubai, a property boom is being driven by foreign investment and rental hikes of over 100 per cent since 2005. The average purchase price for a property rose by some 14 per cent to 7.3 million dirhams (S$3 million) last year from the year before.

In London, despite three interest rate rises over the past year, the latest survey by Britain's largest property website Rightmove indicates that average asking prices grew 22per cent to 366,302 in the four weeks to March 10, compared to the same time last year.

In the exclusive borough of Kensington and Chelsea, the average asking price jumped some 82.7 per cent in just a year. The average price was 661,898 in March last year, but it is 1,208,981 now.

Even the worst-performing borough of Barking and Dagenham has seen 11.5 per cent growth over the past year.

In Paris, rates for the sought-after sixth arrondisement went up 10 per cent last year and are averaging 8,527 euros (S$17,000) per sq m.

According to the Federation National de Immobilier (FNAIM), the prices of apartments in Ile de France - an area which is made up of Paris and seven surrounding suburbs - averaged 1,927 euros per sq m in 1995, but almost doubled to 3,585 euros in 2004. The corresponding figures were 1,488 euros and 2,495 euros for houses in the same region.

Even in emerging markets such as Russia, investor sentiment is high.

Thanks to an under-supply, Moscow residential property prices grew 37per cent on the new developments market in June last year compared to the same period in 2005, while resales rose by 28per cent, according to Knight Frank.

Likewise in commercial real estate, prices are only heading upwards.

Jones Lang LaSalle's chief executive for the European capital market, Mr Tony Horrell, noted of the commercial markets: 'The world's real estate markets are awash with capital.'

A report by the company found that global investments in commercial real estate reached US$682 billion ($1 trillion), or 38per cent more than in 2005.

Mr Horrell notes that Moscow was the 'most dynamic market in Europe'.

Global funds propelled the strong increases.

In Germany, for example, global funds took up 40per cent of all commercial property trade there, said the Jones Lang LaSalle report.

Other significant cross-border investors included those in the US, who put in US$18billion, an increase of 51 per cent, primarily in Britain, France and Germany. British investors spent the same amount, an increase of 200per cent, mainly in Germany.

Middle Eastern investors added US$13 billion, up 14per cent, mainly in the US, Britain, Germany and South Africa, while Australians spent US$12 billion, mainly in Germany and Britain.

Property analyst company King Sturge noted in a report that the commercial property boom was likely to continue in leading cities.

'In Moscow, demand continues to outstrip supply, pushing vacancy rates down to as little as 2-3per cent. This has led to increased rents and pre-leasing activity.

'Paris, meanwhile, experienced a record year in take-up...Vacancy continues to decrease, allowing landlords to reduce incentives and push up rents.'

But for all the bullish sentiment, cracks are showing.

Jitters about the US housing market sent shockwaves around global stock markets earlier this month.

Knight Frank also released a report last week saying that price growth in the residential market is 'beginning to decline in most locations globally' as once-low interest rates remain high.

But it is not writing off the global residential market just yet.

Rather, the head of the company's residential research team, Mr Liam Bailey, said: 'It might be a more interesting and perhaps rewarding strategy to look at the bottom of the table and think which of these countries may see the next upturn.'

Incidentally, the countries at the top of the Knight Frank chart are mostly eastern European states such as Latvia and Poland. And the ones at the bottom? Germany, Japan and Hong Kong.

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Special cities
Making a mark - cities are vying to get ahead of each other. Starting tomorrow, Neo Hui Min looks at plans for Paris, Moscow and Dubai