Which city has the most bubble-tastic luxury property market?

Joining the glamorous ranks of cities you can no longer afford to live in. Image: ROMEO GACAD/AFP/Getty.

Prime property – expensive flats in prestigious bits of cities – is all the rage. Not as somewhere to live, you understand (do me a favour), but as an asset class. Posh flats are an increasingly popular place for the rich to stash their money.

But which city, we hear you cry, has the fastest growing prime property prices? Where, CityMetric’s well-heeled readers demand to know, should we put our money?

One might think, from all the talk of rich Russian oligarchs buying up chunks of Mayfair, that the answer would be London. One would be wrong. According to Knight Frank, in the year to June, prime property prices in London rose by a measly 8.1 per cent: in the ranking of 32 cities accompanying the research, the British capital barely scraped the top 10.

You’d be much better investing your riches in New York, which ranked 3rd, with prices up by 18.4 per cent. Even better would be Dublin, which ranked 2nd, after prices rose by 23.5 per cent in a year. (Investing money in the Dublin housing market has always been a good idea in the past.)

Topping the charts, though, is Jakarta, pictured above. The Indonesian capital may not spring to mind as a luxury destination. In the last year, though, the cost of its prime property – that is, the top 5 per cent of its real estate market – has risen by 27.3 per cent. Here’s the full ranking.

So what’s driving this vertiginous climb? Liam Bailey, Knight Frank’s head of residential research, identifies the usual culprits: “very strong demand” and “limited supply”. This is fantastic for investors who own Jakarta apartments, but it’s not so great for the locals.

So unsurprisingly the authorities have been attempting to slow things down. In September 2013, Bank Indonesia passed a regulation reducing the maximum loan-to-value ratios on investment properties. That required buyers to pay deposits of at least 40 per cent on second properties, and 50 per cent on any beyond that.

Such measures have been known to work. Singapore has been gradually reducing loan-to-value ratios to cool its own property market for the last five years. In 2013, it also introduced an additional 15 per cent stamp duty for foreign buyers who already own homes.

As a result, the luxury market – many of whose occupants are covered by these criteria – hasn’t seen significant growth since mid-2010. This year, prices fell by 7.7 per cent, placing it at the very bottom of Knight Frank’s ranking.

Here’s a chart comparing prime property prices in Singapore with those in other major Asian cities:

So, it is possible to calm a property market down – but you have to really want to do it. Beijing introduced its own cooling measures in 2013 – but they were swiftly rolled back again, after prices fell rather quicker than the central government had hoped. The US-based National Interest magazine accused the city of having a “housing addiction”.

As ever, there’s a tension between the need to stop the market from turning into a bubble – and the benefits high property prices can offer to their powerful owners.

 
 
 
 

There isn’t a single national housing market – so we need multiple models of local regeneration, too

Rochdale. Image: Getty.

This week’s budget comes ten years after the 2007 financial crisis. The trigger for that crisis was a loss in confidence in mortgages for homes, with banks suddenly recognising the vulnerability of loans on their books.

In the last ten years, the UK’s cities and regions have followed very different paths. This week’s focus on housing affordability is welcome, but it will be a challenge for any chancellor in the coming decade to use national policy to help towns up and down the country. Local housing markets differ drastically. The new crop of city-region mayors are recognising this, as rents in parts of south Greater Manchester are on average double the rents in parts of the north of the city-region.

When it comes to buying a home, politicians are increasingly articulate about the consequences of inequity in our housing system. But we must recognise that, for 9m citizens who live in social rented homes, the prospects of improvements to properties, common areas and grounds are usually tied to wider projects to create new housing within existing estates – sometimes involving complete demolition and rebuilding.

While the Conservative governments of the 1980s shrank the scale of direct investment in building homes for social rent, the Labour governments from the late 1990s used a sustained period of growth in property prices to champion a new model: affordable housing was to be paid for by policies which required contributions to go to housing associations. Effectively, the funding for new affordable housing and refurbished social homes was part of the profit from market housing built next door, on the same turf; a large programme of government investment also brought millions of social rented homes up to a decent standard.

This cross-subsidy model was always flawed. Most fundamentally, it relies on rising property prices – which it is neither desirable nor realistic to expect. Building more social homes became dependent on ratcheting up prices and securing more private profit. In London, we are starting to see that model come apart at the seams.

The inevitable result has been that with long social housing waiting lists and rocketing market prices, new developments have too often ended up as segregated local communities, home to both the richest and the poorest. They may live side by side, but as the RSA concluded earlier this year, investment in the social infrastructure and community development to help neighbours integrate has too often been lacking. Several regeneration schemes that soldiered on through the downturn did so by building more private homes and fewer social rented homes than existed before, or by taking advantage of more generous legal definitions of what counts as ‘affordable housing’ – or both.

A rough guide to how house prices have changed since 2007: each hexagon is a constituency. You can explore the full version at ODI Leeds.

In most of England’s cities, the story does not appear to be heading for the dramatic crescendo high court showdowns that now haunt both developers and communities in the capital. In fact, for most social housing estates in most places outside London, national government should recognise that the whole story looks very different. As austerity measures have tightened budgets for providers of social housing, budgets to refurbish ageing homes are under pressure to do more with less. With an uncertain outlook for property prices, as well as ample brownfield and greenfield housing sites, estates in many northern towns are not a priority for private investors in property development.

In many towns and cities – across the North and the Midlands – the challenges of a poor quality built environment, a poor choice of homes in the local are, and entrenched deprivation remain serious. The recent reclassification of housing associations into the private sector doesn’t make investing in repairs and renewal more profitable. The bespoke ‘housing deals’ announced show that the government is willing to invest directly – but there is anxiety that devolution to combined authorities simply creates another organisation that needs to prioritise building new homes over the renewal of existing neighbourhoods.


In Rochdale, the RSA is working with local mutual housing society RBH to plan for physical, social and economic regeneration at the same time. Importantly, we are making the case – with input from the community of residents themselves – that significant investment in improving employment for residents might itself save the public purse enough money to pay for itself in the long-run.

Lots of services are already effective at helping people find work and start a job. But for those for whom job searching feels out of reach, we are learning from Rochdale Borough Council’s pioneering work that the journey to work can only come from trusting, personal relationships. We hear time and again about the demoralising effect of benefits sanctions and penalties. We are considering an alternative provision of welfare payments, as are other authorities in the UK. Importantly, residents are identifying clearly the particular new challenges created by new forms of modern employment and the type of work available locally: this is a town where JD Sports is hiring 1000 additional workers to fulfil Black Friday orders at its warehouse.

In neighbourhoods like Rochdale’s town centre, both national government and the new devolved city-region administration are considering an approach to neighbourhood change that works for both people and place together. Redevelopment of the built environment is recognised as just one aspect of improving people’s quality of life. Residents themselves will tell you quality jobs and community facilities are their priority. But without a wider range of housing choices and neighbourhood investment locally, success in supporting residents to achieve rising incomes will mean many residents are likely to leave places like Rochdale town centre altogether.

Meaningful change happen won’t happen without patience and trust: between agencies in the public sector, between tenants and landlords, and between citizens and the leaders of cities. This applies as much to our planning system as it does to our complex skills and employment system.

Trust builds slowly and erodes quickly. As with our other projects at the RSA, we are convinced that listening and engaging citizens will improve policy-making. Most of those involved in regeneration know this better than anyone. But at the national level we need to recognise that, just as the labour market and the housing market vary dramatically from place to place, there isn’t a single national story which represents how communities feel about local regeneration.

Jonathan Schifferes is interim Director, Public Services and Communities, at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA).