Property Crash Hot Spots – London Dubai and Hong Kong

The Citi Private Bank report commissioned by Knight Frank shows that the largest drops in residential property prices were in Hong Kong (-26.8%), the Home Counties (-19.4%), London (-16.9%) and Dubai (-19.1%).

But the fall in the fourth quarter was insufficient to completely wipe out annual property price gains in three cities: Moscow (+13.1%), Shanghai (+5.2%) and also Dubai (+10.8%). Aside from Dubai the other property markets that slumped in the fourth quarter were all down for the year: Hong Kong (-24.5%), Home Counties (-10.2%) and London (-9.4%), which suggests we have a lot further to fall. Considering most of the banks have posted losses that have canceled out the last ten year’s profits we should expect property prices to follow this model.

The report asks “whether the downturn is leading to a simple repricing of assets that had become overvalued through the late boom period, or whether something more fundamental has occurred in the global economy that will mean prime market pricing will be further suppressed and take a long time to recover.”

Knight Frank says the evidence from London’s suggests a simple repricing, now aided by the devaluation of sterling. By early 2009, the 30 per cent discounts being offered triggered a rally in market activity and allied to a 20 per cent decline in sterling against the major world currencies, offered the potential of savings up to 50 per cent on peak prices for international buyers. This of course completely ignores the fact that many international buyers are facing similar issues in the own countries and many of the world’s “richest” are suffering massive losses. Russia’s richest woman, coincidentally a property developer Yelena Baturina has just gone cap in hand to the Russian government for a $1.3 billion bailout.

It seems the only group suggesting we are about to see the end of the correction are the estate agents. This sort of argument suggests buyers magically appear out of the woodwork with oodles of spare cash – because one thing is for certain – the banks are in no position to lend willy-nilly to property speculators – at least for the next few years.

The 1991-2 slump in London property was followed by 4 years of stagnation and the global financial recession this year is an even worse climate for property sales. The world’s financial system destroyed $50 trillion of investment wealth last year, and goodness knows the level of losses they are likely to announce this year. Do I hear $300 trillion?