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News: European growth slows

Thu, 20 Sep 07

European growth has slowed to more sustainable levels, curbed by higher interest rates and cautious lending, while the US market is also slowing, reports Knight Frank...

The latest Knight Frank Global Price Index reveals that growth in residential property prices around the world is slowing. On an unweighted basis prices globally are rising by 7.8% per annum to Q2 2007 compared to 9.6% 12 months earlier. Rising interest rates have been a major factor in slowing house price growth, together with the tightening of lending criteria seen in many European countries.

The slowdown in growth is also a consequence of the reining in of unsustainable rates of house price inflation in a number of European markets. This is particularly true of Latvia where the rate of year-on-year price growth in the capital continues to slow.  While still topping the Knight Frank Global House Price Index, annual price inflation in Riga has been curbed by new regulations on stamp duty introduced earlier in the year with the aim of reducing speculative property investment. The fall in property prices has been felt most in the apartment market, properties typically of interest to speculative purchasers.

US sub-prime woes causing shockwaves

The slowdown in global house price inflation is likely to be affected by the recent difficulties in the US sub-prime market, as banks review their lending criteria. The US has already seen some fallout from the crisis. Q2 price growth in the US was just 3.2% higher than in the corresponding quarter of 2006 – the lowest rate of growth since 1997.

However, price inflation varies considerably across the US: states including Texas and Oklahoma saw growth in the region of 6.3%, while in the New England area, prices rose by just 0.5%. Anticipated interest rate cuts by the Fed may ease difficulties in areas most affected.

Europe cools

Growth also appears to be slowing in previously top performing western European countries. Of particular note is the slowdown in the Irish residential market, where prices in June 2007 were just 0.9% higher than a year earlier. Following a sustained period of strong price growth, higher interest rates across the Eurozone have applied a brake to Irish house price inflation. However, as in the US, there are regional disparities: growth in Dublin significantly exceeded that in the rest of the country. Other previously strong performers in the Knight Frank ranking – notably Spain – have also seen growth rates moderate. The price boom in Spain appears to be over, although prices are still rising in many locations. Nationally prices in Q2 2007 were more than 5% higher than in Q2 2006.

The slowdown has continued to bite in Denmark, where price inflation to Q2 2007 was considerably lower than the previous year. France, the Netherlands, and Switzerland have all seen rates of property price inflation slow. The German residential market also remains in the doldrums, with year-on-year price growth having declined for four consecutive quarters. Likewise, Sweden has also seen negative price growth over the last 12 months.

But it’s not all bad news...

However, it’s not all bad news for global residential property markets. A number of countries have seen price growth higher than in 2006 Q2. Bulgaria has seen strong growth over the last year, perhaps reflecting forthcoming restrictions on new residential developments in some popular resort areas. Estonia has seen higher annual price inflation than at the same period a year earlier, albeit with a marginally lower annual growth rate than at the end of the previous quarter. The UK has also seen continued strong price growth, fundamentally driven by an undersupply of property, and until recently, the increased availability of more flexible mortgage products.

In general, it is nations outside Europe that have seen continued growth in residential property prices. Singapore has seen a spectacular improvement in its fortunes, with house price inflation exceeding 20%. South African prices have continued to rise, as have those in New Zealand and Australia. In fact, of the non-European nations in the table, only the US and Japan are lagging behind.

Knight Frank Global House Price Index

Location

2006 Q2

2007 Q2

2006 Q2 Rank

2007 Q2 Rank

Position change from 2006 Q2 index

Position change from 2007 Q1 index

 

 

 

 

 

 

 

Latvia (Riga)1

45.3%

37.7%

1

1

0

0

Bulgaria

12.2%

27.1%

10

2

8

0

Singapore

5.7%

21.0%

21

3

18

-4

Estonia (Tallinn)

13.2%

20.2%

6

4

2

0

South Africa

14.7%

15.3%

4

5

-1

-1

Norway

12.2%

13.9%

9

6

3

1

New Zealand

10.6%

10.8%

13

7

6

-5

UK

5.6%

10.6%

22

8

14

-1

Canada

11.8%

9.9%

11

9

2

1

Australia

8.0%

9.2%

17

10

7

-1

Hong Kong

-2.4%

8.8%

30

11

19

-13

Lithuania (Vilnius)

19.5%

8.1%

3

12

-9

9

China

5.8%

7.1%

20

13

7

-6

Belgium

10.1%

6.6%

14

14

0

4

Finland

6.7%

6.1%

19

15

4

-5

Spain

10.8%

5.7%

12

16

-4

0

Indonesia

7.7%

5.2%

18

17

1

-1

Austria

3.4%

4.2%

26

18

8

1

Netherlands

5.0%

3.6%

24

19

5

6

US

9.9%

3.2%

15

20

-5

-1

France

14.3%

3.2%

5

21

-16

7

Hungary

-0.4%

2.6%

28

22

6

-1

Switzerland

3.8%

1.7%

25

23

2

-3

Portugal

-0.4%

1.3%

29

24

5

-3

Ireland

9.4%

0.9%

16

25

-9

10

Greece

12.5%

0.3%

8

26

-18

1

Japan

-3.6%

0.0%

31

27

4

-3

Denmark

23.3%

-1.3%

2

28

-26

6

Sweden

12.8%

-2.5%

7

29

-22

1

Germany

0.5%

-6.9%

27

30

-3

1

 

 

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