Despite economic headwinds, there are opportunities across the top global real estate sectors, and US property investors are increasingly looking to the UK’s prime property market.
In Knight Frank’s latest Global House Price Index, which offers a look at the trends within the mainstream property markets in 56 countries, the research shows global house prices are increasing at the slowest pace since 2015.
Price ares down from a recent peak of 11.1% growth seen in the first quarter of 2022, when property markets were booming in the aftermath of the pandemic. The data reveals the average annual house price growth slowed to 3.6% in the 12 months to Q1 2023 and is down from 5.7% in the previous quarter.
However, quarterly growth has improved. In the final three months of 2022, global house prices contracted by 0.6%, but there was a 1.5% increase in the first three months of 2023.
Factors impacting property sectors across the globe
One of the major factors influencing prime property markets across the globe is inflation. It remains stubbornly high in some areas, particularly in the USA, UK and the rest of Europe. Central banks are attempting to rein this in and in turn are pushing interest rates up.
While we could be closing in on peak interest rates, the downward pivot may be further away than previously expected. Because of this, a large number of property investors are currently prioritising reducing their debt. By paying off borrowing costs at a quicker rate, investors should be able to offset some of the cost increases.
This is especially important as house prices have stopped accelerating at the rate they did in the immediate post-Covid period, which means investors have switched their focus more towards monthly rental yields. By prioritising lowering mortgage outgoings, this can positively impact their overall income in the long-term.
And despite the ongoing challenges in the sector, property investors are proving to be “cautiously optimistic”, while recognising and adapting to market changes to help them remain successful.
Looking past economic headwinds in prime property markets
Within Knight Frank’s most recent Wealth Report, which focuses on prime property markets across the world and hones in on some of the main issues and influencing factors, the overarching message is that investors should be looking past the current economic headwinds.
Liam Bailey, global head of research at Knight Frank, states: “As the interest rate pivot approaches later this year we believe market sentiment will shift, quickly, and investors need to be well placed to take advantage of the very real opportunities emerging across global real estate markets.”
Global high-net-worth (HNW) individuals consider residential property the safest asset class for stability, according to Knight Frank’s HNW Pulse Survey. The key factors driving prime property purchases from this demographic is investment, followed by lifestyle and safe havens.
Increasing interest from US investors in UK property
The US dollar remains strong by historic standards, which will likely mean dollar-based buyers and investors will continue to play a substantial role in the top global prime property markets throughout the rest of the year.
Many investors are even looking to diversify away from the US housing market, with the UK and the rest of Europe looking particularly attractive given the current favourable exchange rates.
With global property investment, connectedness is often an important consideration as it shows they are critical world hubs. London is tied with Dubai as the most connected city in the world, which Knight Frank ranked by the number and quality of flight connections. And as a whole, the UK is home to some of the top private schools and universities globally.
Additionally, the UK is the fourth most international prime property market in Europe. So, overseas buyers, especially US investors, are expected to remain increasingly active in the UK property market.
