Dublin and Madrid real estate ‘make best recovery in Europe’
Prime property markets in Dublin and Madrid are back in demand by property investors and are likely to be joined by Rome, Barcelona and Paris, says Knight Frank
Dublin, Ireland, and Madrid, Spain’s property markets have made the best recovery among European city prime property markets, says a new report.
Rome, Italy, Barcelona, Spain and possibly Paris, France, are likely to join them as luxury growth markets in 2014, according to Knight Frank’s European Cities Review.
Kate Everett Allen, Knight Frank’s Head of International Research, tells OPP Connect, “Last year proved a watershed for ‘recovery cities’ such as Madrid, Dublin, and to a lesser extent, Rome. Not only have luxury prices bottomed out, but confidence has improved and particularly in Madrid and Dublin’s case they are firmly back on investors’ radar, recording price growth of 5% and 24.6% respectively in the year to March 2014.”
But with the eurozone crisis far from over, there is a considerable disparity among the performance of property markets in both first and second-tier cities, says the report.
“Six years of slow sales activity means the choice and availability of prime homes is at its best for several years. However, while London’s prime development pipeline is relatively strong, there is little planned or under construction in many of Europe’s historic and high density cities such as Paris, Monaco and Vienna.
“If market activity strengthens and only limited new supply is added, the luxury stock that is on the market may take two to three years to be absorbed, with the potential for further price growth thereafter.”
Monaco, Venice, Italy, and Barcelona, Spain, have more foreign buyers than domestic buyers, with Florence, Italy, and London, UK, almost evenly split, says the inaugural report, which examines price performance, demand drivers, levels of supply and future trends towards generating and attracting wealth.
Munich is forecast to see the largest rise in population of wealthy individuals over the next 10 years. London will be home to 4,940 Ultra High Net Worth Individuals (UHNWIs) in 2023, more than the forecast for Paris, Geneva and Zurich combined. Of the smaller cities, UHNWIs are set to rise by 26% in Vienna and 23% in Barcelona.
But with the eurozone crisis far from over, there is a considerable disparity among the performance of property markets, says the report.
“Even amongst Europe’s first tier cities there is considerable disparity. With luxury prices in Paris oscillating around ?12,000-?15,000 per square metre, property here is looking good value, especially when compared to London or Monaco where prime prices are closer to ?30,000 or ?55,000 per square metre respectively – even taking President Hollande’s tax ruminations into consideration,” says Kate Everett Allen.
“As economic indicators improve, the safe haven effect may not be uppermost in luxury buyers’ minds. Instead, lifestyle, proximity to schools or universities and security considerations may be increasingly influential.
“Geopolitical tensions around the world will continue to push wealth across borders. Similarly, changes to immigration law (Switzerland), the fluctuation of tax rates (France) or the introduction of Golden Investor Visas (Spain, Portugal etc) can lead to short-term changes in buyer sentiment.”
In most cases, prime prices in Europe’s cities since 2008 have performed more strongly than those of rural and coastal second homes.
But with the continued tapering of Quantitative Easing in the United States and the removal of stimulus measures by governments in both the East and West, the global growth in prime property prices is set to slow, Knight Frank predicts.
“Lifestyle purchasers of luxury homes are likely to be less concerned, but investors may start to look at rental returns and gross yields rather than focusing solely on capital appreciation.
“Key to attracting the world’s rich will be accessibility and infrastructure. New flight routes or the introduction of a winter timetable from key buyer destinations can be sufficient to have a significant impact on demand levels.”
Even so, Europe will continue to be a favoured choice of the wealthy. “Although wealth creation is forecast to be strongest in emerging markets in Asia and Latin America, the appeal of Europe’s luxury bricks and mortar will – due to its history, diverse cultures, architecture and climate – mean it will remain the location of choice for the world’s wealthy.”