Prime Property In European Cities Weakest Globally

Miami Property

Knight Frank’s latest Global Prime Cities Index gives us a worrying glimpse into the health of some of the world’s property markets. Looking at the report there is no doubt that Europe’s prime global cities are struggling with the heavy burden of indebted southern European economies like Greece and tight monetary policies.

I like to think of prime cities as a thermometer that I can use to check the temperature of a country’s overall property market. If I’m looking at the prime city in that country I like to see it posting some kind of meaningful growth because this tells me the country as a whole is in good shape.

If the temperature is hot, it gives me confidence that investing in and around a particular city will give me a healthy return on investment. On the other hand if the temperature is cold and heading deep into sub-zero territory as many prime European cities are, then I would be worried about catching a cold.

Much has changed since the first Prime Cities index in 2011 which saw two European cities in the top 5, with Paris occupying top spot. Now European cities are conspicuous by their absence with none appearing in the top 5 and only St Petersburg and Monaco featuring in the top 10.

Even London which has been seen as a safe haven was in sixth place two years ago and has now slipped down to 12th place.  This reflects a steady loss of confidence in the UK capital after the country lost its triple ‘A’ rating and the economy once again flirted with a triple dip recession early in the year.

Some might criticise Knight Frank’s league table for looking back, however it doesn’t lie when we look at the health of national economies supporting growth in those cities. Top performing Jakarta is supported by a national economy which posted 6.2% GDP in 2012 while second placed Bangkok rests easy on the booming Thai economy, which has seen 18.9% GDP in the same year.

Move several thousand miles west, however, to Miami, and we see a city that looks odd in the company of these booming Asian cities.  Yes the US economy is in recovery – GDP hit 2.5% in 2012, yet this falls far short of the red hot Asian economies even if it is still some way ahead of Europe’s largest economies.

Miami is a case apart because prime property prices have risen by 21.1% in 12 months even though other US cities such as New York have actually seen prices move in the opposite direction falling -7.1%.

So if Miami is not being helped by moderate growth in the US economy, what is the secret ingredient pushing it into the top 3?

While it helps that the US economy is in positive growth mode, Miami is attracting the attention of affluent Latin American investors from Brazil, Venezuela and Argentina.  As the Brazilian economy grows more people consider Miami as an attractive alternative, particularly with prices that are still some way behind what they were at the peak of the last property boom in the city.

For example a luxury waterfront apartment in Miami with room for a yacht can still be bought for as little as £400,000. This is still exceptional value for a city that is counted in the same league as Monaco on the Prime City list.

As we see in Miami, interest from foreign investors is a more powerful driver of property markets than economic growth. With less interest from foreign investors who see Europe as more risky than it was, it could be some time before we see more of Europe’s cities back in the top 10.

What are your thoughts on Knight Frank’s Prime Cities index? Please leave your comments below:

Kind Regards

Brett Tudor
Property Expert

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