Dubai luxury home prices soar by almost 50%

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According to new research, Dubai’s luxury home prices increased by almost 50% in the year leading up to June, keeping its top spot for the eighth consecutive quarter.

Data from the property consultant firm was revealed on Wednesday, showing that prices in Dubai had increased by 225% since plunging to an all-time low in the third quarter of 2020. The Emirate held the top spot in the rankings for the ninth consecutive quarter.

Tokyo, with an annual increase of 26.2%, and Manila, with an increase of 19.9%, took second and third positions, respectively.

Shanghai, China, saw an addition of 6.7%, and Singapore saw an increase of 4.2%.

The survey stated that “the influx of expatriates to Singapore, driven by the thriving financial and professional services sector, has impacted the rental market more than the sales market,” noting that the difference is partially attributable to taxation for purchases by foreign buyers.

Foreign buyers of residential property in Singapore must now pay an extra 60% in buyer’s stamp duty, double the prior 30%, effective at the end of April.

Due to a rise in unsold inventory from recently completed projects, prices in Hong Kong have fallen 1.5% over the past year. The Hong Kong government increased its mortgage loan-to-value ratio for residential properties valued at 15 million Hong Kong dollars ($1.9 million) or less to 70% to boost demand.

The ability of the shift to “significantly boost” growth is still unknown, according to Knight Frank’s analysts, even though the change is expected to be welcomed by purchasers.

Other cities that experienced declines were New York, which fell 3.9%, and San Francisco, which had an 11.1% decline. Frankfurt, Germany, came in last on the list after experiencing a 15.1% decline.

In all 46 markets included in the Knight Frank Prime Global Cities Index, average yearly price growth was 1.5%.

The switch to higher interest rates continues to pressure the world’s housing markets. However, the index’s findings demonstrate that prices are backed by robust underlying demand, a lackluster supply due to the pandemic’s interruption of new construction projects, and the influx of workers back into urban areas.

Price changes in many markets are likely to be less pronounced than was anticipated even three months ago because uncertainty over the direction of inflation has decreased in recent months.

Five reasons the housing market is not about to crash

Housing economists point to five compelling reasons that no crash is imminent.

  1. Inventories are still very low: According to the National Association of Realtors, there were 3.1 months’ worth of available properties in June. Early in 2022, that quantity was only a meager 1.7 months’ supply. Many purchasers continue to be forced to bid up prices due to the continuous paucity of inventory. Additionally, a price crash in the short term is not possible, given the current state of supply and demand.
  2. Builders needed to build more quickly to meet demand: After the previous recession, homebuilders drastically reduced their output and never fully recovered to pre-2007 levels. They must wait to purchase land or quickly obtain regulatory clearances to meet demand. Although they are building as much as they can, it seems unrealistic that they would overbuild as they did 15 years ago. Greg McBride, CFA, Bankrate’s top financial analyst, claims that increased demand and a supply shortage are the primary causes of the price increase. “Supply and demand can balance out again as builders put more houses on the market, more homeowners opt to sell, and potential purchasers are priced out of the market.
  3. Demographic trends are creating new buyers: Homes are in high demand. Due to the rise of working from home, many Americans who already had homes during the epidemic decided they wanted larger homes. The millennial generation is enormous and at a perfect age for purchasing. And a growing population that is enthusiastic about homeownership is Hispanics.
  4. Lending standards remain strict: “Liar loans,” in which borrowers were not required to provide proof of their income, were widespread in 2007. Regardless of credit history or down payment amount, lenders gave mortgages to the majority of people. These days, lenders have strict requirements for borrowers, and most people applying for mortgages have outstanding credit. In the second quarter of 2023, mortgage borrowers had a high median credit score of 769. According to the Federal Reserve Bank of New York, if lending criteria were relaxed and conditions returned to those of the wild Wild West in 2004–2006, that would be a completely different situation. Additionally, we start to worry about a crash if we notice prices artificially being bid up by lax lending rules.
  5. Foreclosure activity is muted: Millions of foreclosures entered the property market in the years following the housing meltdown, driving down prices. It’s not like that anymore. The majority of homeowners have ample equity in their properties. As a result of lenders avoiding serving default notices during the worst pandemic, foreclosures fell to all-time lows in 2020. The number of foreclosures has increased slightly since then, but not to the same extent as before.

All of this points to the conclusion that property prices are still outpacing people’s ability to pay them. But this boom shouldn’t go bust, should it?

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