Luxury houses tempt buyers with lower tags

LONDON: Luxury homes became more affordable last year, as the financial crisis eroded prices from Monaco to Barbados, according to Knight Frank. 

Prime real-estate values at 56 locations declined by an average of 5.5%, the London-based property broker said in a report published on Tuesday. Monaco was the most expensive market for the second year in a row, followed by London and Paris. 

Wealthy individuals put off making purchases in 2009 because of concern about the economy, Knight Frank said. 

Prices of properties in the countryside, coastal locations and ski resorts, often bought as second homes, fell by at least 12%. The biggest declines were in Dubai, in the western part of Portugal’s Algarve, in Palma on the Spanish island of Mallorca and in Dublin. Values in each of those markets fell at least 22%. 

“Cities tend to perform better because they are necessity driven, whereas resorts and country pads are more discretionary purchases,” said Liam Bailey, Knight Frank’s head of residential research. 

Luxury apartments and houses in cities appreciated by an average of 0.4%, led by a jump in values in China, Hong Kong, Singapore and Jakarta, the broker said. 

“Boosted by China’s quick recovery from the global recession, the price of prime properties in Shanghai, Beijing and Hong Kong rose at a phenomenal rate last year,” Bailey said. Shanghai Booms Shanghai had the biggest increases, with property prices averaging $500 to $700 a square foot, or 52% more than a year earlier, the survey showed. It was the 13th most expensive luxury-home location among cities. There were 8,438 properties sold there last year for more than $735,000, making it China’s largest prime residential market. 

Luxury-home prices in Beijing rose 47%. Hong Kong values increased 41% to average $2,000 to $2,500 a square foot, making it the fourth most-expensive city in the study. China is already taking steps to rein in the real-estate market as price increases accelerate. The government in January reimposed a sales tax on homes sold within five years of their purchase and the People’s Bank of China raised the proportion of deposits banks must set aside as reserves to reduce lending. 

Property prices in China rose 10.7% in February, the most in almost two years, prompting the World Bank to urge the central bank to lift interest rates to prevent a bubble. While government measures may damp demand, “strong economic growth and limited stock should keep prices stable” this year, said Xavier Wong, Knight Frank’s head of research for greater China and Hong Kong. 

In Monaco, where residents include Formula One champion Jenson Button and billionaire Philip Green, prices fell by about 15% last year. The average cost of a luxury apartment or house in the low-tax state on the Riviera ranged from $4,300 to $5,900 a square foot at the end of 2009, Knight Frank said. 

L ondon’s luxury-homes market was the best performer in Europe as the pound’s weakness and a yearlong slump in values encouraged investors to

compete for a shrinking number of homes for sale. In the US and Canada, luxury home values fell by an average 7.7%, led by San Francisco, while in the Caribbean they decreased 13%. 

Knight Frank’s report was accompanied by a survey on Citigroup Inc’s private bank, which showed that 91% of its customers expect their net wealth to be either unchanged or to increase “slightly” this year. Half of the respondents in the Citi Private Bank survey said they expected better returns from residential real estate this year than from other types of property. Real estate accounted for about a third of the assets owned by the bank’s clients, more than stocks and other investments. 

Property is expected to be the third-best performing asset class in 2010, after stocks and hedge funds, the survey showed. “Although relatively few respondents were planning to purchase a new primary residence this year, a significant proportion do see buying opportunities in the current market,” said David Poole, head of the UK arm of Citi Private Bank. Source: ET