Global House Price Index - Economic uncertainty deflates west while emerging countries grow stronger (Q4 2007)

Economic uncertainty deflates west while emerging countries grow stronger

Key Highlights:

  • Global house price inflation in Q4 2007 stood at 8.2%, compared to 9.7% in Q4 2006
  • Bulgaria tops the index as the country with the greatest annualised price growth (33.7%)
  • Latvia falls 25 places having recorded negative year on year growth of -7.1%, two paces ahead of Estonia which suffered price falls of 14.5% over 2007.
  • In the Far East, Singapore with annualised growth of 31.3% and Hong Kong at 22.3% both outperformed the market, as did China which has seen prices in some cities rise by over 20%

Liam Bailey, Head of Residential Research, Knight Frank says:

“The Knight Frank Global House Price Index shows that while property prices in Europe and America appear to be suffering from the downturn in economic conditions; prices in Asia and elsewhere, notably Singapore and Hong Kong, are performing very well.

“The most outstanding feature in this index in Europe is Bulgaria’s continued strong showing against the astonishing reversal of fortune witnessed in the three Baltic countries. Two of the three; Latvia and Estonia, suffered negative growth (-7.1% and -14.5% respectively) and the third, Lithuania managed price growth of just under 1%. A year ago each were high flyers in our index with 66.6%, 23.8% and 23% annualised growth rates respectively. Uncertain employment conditions, rising interest rates and household indebtedness are all identified as contributory factors in this turnaround.

“The country by country summary that follows provides an insight to the shifts currently taking place in house prices across the world.”


Price growth across the markets covered in the Knight Frank Global House Price Index fell in the final quarter of 2007 on a year on year basis. Globally, price inflation over the year was 8.2%, compared to 9.7% recorded in Q4 2006. Falling annual price inflation to the final quarter 2007 in markets such as Estonia, Ireland and Latvia have more than compensated for the continued strong performance seen in Bulgaria and the impressive rates of growth seen in Russia, Poland, Hong Kong and Singapore.


As in the previous quarter Bulgaria has continued to see the strongest growth in house prices of the countries included in the Knight Frank Global House Price Index. Prices for flats over the year increased by nearly 34%. Price growth in the last quarter of the year reached 8%, yet prices remain relatively low compared with much of Central and Eastern Europe. Price growth has been greatest in the region around Vidin in the North West, and Ruse in the north east, close to the border with Romania. Prices in the capital Sofia also saw significant growth during 2007. In each case, prices increased by over 50%.

Russia has been included in the Knight Frank Global House Price Index for the first time. Price growth across the Russian Federation average 30% during 2007. However, this figure hides marked regional disparities. The price of new build flats in St Petersburg rose by over 75%, and average growth for 2007 across the city was almost 50%. Moscow saw slower rates of growth, with an annual average growth rate of 27.1%.

Poland is another first time entrant to the Global Index. Prices rose over the course of the year by around 22%, although the last two quarters saw falls in growth, of 7% and 2.3% in Q3 and Q4 respectively, somewhat negating the 16% growth seen in each of the previous two quarters.

The surprise performer in Europe was Iceland. Prices in the Reykjavík region rose by almost 19% during 2007. Price growth picked up towards the end of the year at a time when many countries across Europe were seeing the rate of house price inflation slowing. This has occurred despite interest rates of over 13%, although the latest movements in interest rates have been downward. Increased access to credit, the increased availability of mortgage products, low unemployment and a booming economy are some of the factors that have driven house price growth, although rates of employment growth are expected to slow during 2008 which should act as a brake on house price inflation.

Croatia has also seen strong growth during the last year. The annual rate of 11.6% growth to Q4 2007 was marginally lower than that to the previous quarter at 12.1% to Q3 2007, though this still appears to resemble something of a return to form for Croatia, after rates of house price inflation dipped to below 6% towards the end of 2005. The highest values per square metre for residential property are found in apartments in the capital Zagreb. The value of property on the Croatian coast is around 90% of that in the capital.

In the remaining European countries, the strong performers are all Scandinavian. Sweden (with 10.6% growth) has seen the strongest growth in Stockholm and the surrounding area, where residential property prices increased by around 15% during 2007. Malmo also saw relatively strong growth, with price inflation over the course of the year just keeping pace with the national average. Growth in neighbouring Norway was slightly lower over the year, at just under 8%, and Finland saw growth of 5.3%. The strongest growth in Finland has been seen in the regions within commuting distance of Helsinki. Improvements to the rail network to locations have boosted price inflation in locations such as Kanta-Häme, where residential prices grew by 12.3% in 2007. Conversely, although statistics on price growth for Denmark have not yet been made available, indications are that the market has slowed considerably and that some areas have seen falls in price growth.

Price growth in the UK slowed in the final quarter of 2007 to reach the lowest annual rate of growth since Q4 2005. Average price growth across the country has hidden the large regional disparities: Price growth in Northern Ireland remained extremely strong with over 24% growth during the course of the year, while the Yorkshire and the Humber region saw price growth of just 3%. Growth has been constrained to some extent by declines in affordability affecting first-time buyers, and we expect growth over coming year will be slowed by consumer sentiment, adversely affected by turmoil in global financial markets.

Other European markets outside the UK have seen a slowdown in growth. Spain, though much maligned in the popular press, is one of the stronger performers over recent months. Data released by the Bank of Spain indicate that residential property prices rose by almost 5% during 2007. Some areas of the country saw extremely low rates of house price inflation over the course of the year: La Rioja and Madrid both saw rates of HPI below 2%, contrasting sharply with the 8.1% growth seen in Murcia, and the 7.7% in Asturias. The Balearics also saw relatively strong growth with the annual rate to Q4 2007 just under 7%.

Annual growth in France also slowed. FNAIM, the French National Association of Real Estate agents recently released data which revealed that resale prices across the country grew by 3.6% during 2007. The rate of growth in the 4th quarter represents a rebound in growth from that seen in the 3rd quarter, when the quarterly change showed a decline of almost 1%. The 1.1% growth seen in the 4th quarter reflects a strong growth rate in the price of apartments during the quarter, although price inflation for houses has outpaced that of apartments over the course of the year (4.3% and 3.1% respectively).

The fortunes of the Baltic countries appear to have turned around. Riga, the capital of Latvia, which only 6 months ago headed up the Knight Frank Global House Price Index with a year on year growth rate of just under 40%, is now one of the worst performers in the index. Prices in the capital fell by 7.1% over the course of the year. Uncertainty over employment prospects, high levels of household indebtedness, and rises in interest rates to combat inflation have all contributed to ending the property market boom seen over recent years. Mortgage interest rates increased substantially during 2007: the interest rate on a one year fixed rate mortgage deal had risen from 6.2% in January to 14.3% in December. Estonia is equally in the doldrums, with a 14.5% fall in prices over the course of the year. Lithuania has fared slightly better, and the rate of growth remains positive, albeit barely, at 0.9%.

Regular readers of the Global House Price Index will not be too surprised to hear that price inflation in Germany during the 12 months of the last year remained negative. Prices in Q4 2007 were 4.3% lower than in the corresponding period in 2006. However, the silver lining to the lingering German residential property market cloud is that the rate of decline is not significantly greater than that of previous quarters. Indeed, there is yet more promising news; while resale property prices fell by 1.6%, and apartment prices fell by almost 3%, the price of new build properties actually rose by 0.5% in the space of one quarter, representing annual growth of almost 1%.

In Ireland the housing market is also suffering somewhat. The rate of decline in house prices nationally accelerated during the latter six months of the year, with a fall of almost 5% in the last six months. Price falls have been marginally higher in the capital than in the rest of the country. New build prices have not fallen as fast as that of resale property.

Far East:

With the exception of Bulgaria and Iceland, it is largely locations outside of Europe that have driven global property price inflation during 2007. Singapore prices rose steadily through the course of the year to show a 31% increase on prices of December 2006. All property types saw strong price inflation, although the strongest growth was seen in the apartment market. Likewise Hong Kong, where property prices for all types of property rose by 24% in 2007, with almost half of that growth occurring in the last quarter alone.

In China, house prices in 70 cities rose 10.5% over the 12 months to December 2007. Growth in Shanghai marginally exceeded the national average with 10.8% growth. The fastest growth has occurred in the city of Urumqi, where price inflation was just under 25%. Data for December has revealed that prices in Beijing fell during the final month of the year, as a series of regulatory policies aimed at cooling speculative investment in the city’s housing market were introduced, including a tightening of rules for residents buying second homes. Shenzhen is also reported to have seen prices fall towards the end of the year, as credit restrictions were tightened mid 2007 following a high profile embezzlement scandal which forced the closure of 20% of the city’s property agents.

South Africa:

Although impressive by international standards, the 12.3% growth recorded in South Africa represents a significant slowdown for the South African market, and is the lowest annual growth figure since Q4 1999. Consumer price inflation of 9% makes the rate of real house price growth even less impressive. The market has slowed, predominantly as a result of rises in interest rates in the second half of 2007, but also as a result of the implementation of the National Credit Act on 1st June 2007. This saw a tightening of lending criteria and put the legal onus on banks and building societies to ensure that loans are only granted where it can be proven that repayments will not exceed 30% of an applicant’s disposable income. The outlook for house price inflation over the next year remains uncertain as although inflation is expected to remain high, new residential construction is predicted to slow, raising levels of demand for existing homes. Income growth over the next year is also uncertain as the electricity crisis in South Africa will affect productivity and thus may impact on levels of housing affordability.

United States of America:

The US market remains troubled. House prices in the US have continued to decrease, and the pace of decline appears to be increasing. Prices nationally have fallen 0.3% over the last year as the 1.3% quarterly decline in the last three months of 2007 negated slight gains earlier in the year. The only state where prices did not fall in the final quarter of 2007 was Maine. However, not all areas of the US have seen prices fall over the course of the year. Utah, Wyoming, North Dakota, Montana and Alaska all saw price inflation of over 6%, with Utah achieving 9.3% to Q4 2007. The greatest declines in residential property prices were observed in California, where prices fell by 6.6%, Nevada (5.9%), Florida (4.7%) and Michigan (4.3%).

Canada and Australia:

Canada and Australia have both seen year on year residential real estate price inflation rise from around 8% to the previous year to 15% and 12% respectively. Both economies have been buoyed by demand for raw materials originating from rapidly industrialising economies such as China and India. The fastest growth in Australia has occurred in Brisbane and Adelaide, both of which have seen price growth of over 20%. Conspicuous by its poor price inflation performance relative to the rest of Australia is Perth, where annual growth over the course of the year was just 1.1%, possibly a reaction to the 37% growth that occurred in 2006. Growth in Sydney was 8% during 2007.

Courtesy: Knight Frank Residential Research

About The Knight Frank Global House Index

The Knight Frank Global House Index tracks average house prices across a comprehensive list of countries across the world. This unique index is based on an assessment of price changes in the broad mainstream housing markets of the countries covered.

For further information, please contact:

Liam Bailey, Head of Residential Research, Knight Frank
Tel: +44 (0)20 7861 5133
Mob: 07919 303148
Email: [email protected]

Niki Riley, International Residential Press Manager, Knight Frank
Tel: +44 (0)20 7861 5037
Mob: +44 (0)7769 695088
Email: [email protected]

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