Global property prices set to lose upside momentum on negative policy shock and China slowdown

Higher interest rates and market-cooling measures likely to slow price-gain momentum in the coming months, Knight Frank says

Property stocks have been rallying this year, regaining all of the losses triggered by the pandemic, based on an S&P index

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A property agent arranges a window display at Spencers in Birstall, UK in July 2021. Property prices are seen moderating in the coming months. Photo: Bloomberg

Published: 6:00pm, 12 Oct 2021Updated: 6:07pm, 12 Oct 2021

Gains in global property prices, which have underpinned a three-decade bull run in related stocks, are set to moderate in the coming months on negative shock from policy tightening, market-cooling measures and China’s crackdown on industry leverage, experts cautioned.

The Global Residential Cities Index, which tracks prices in 150 cities, is likely to peak in the next 12 months, with cities recording double-digit gains likely to suffer more as central bankers have begun to dial back near-zero rate policy, according to consultancy Knight Frank.

While the index gained 9.8 per cent in the second quarter from a year earlier, the momentum has eased in some countries, particularly in China as Evergrande’s debt crisis sapped confidence among homebuyers and dented sales. Prices in 15 mainland cities in the index rose 5.6 per cent on average in the 12 months through June, compared with a 8.6 per cent pace two years earlier.

“Housing markets have more room to run, but we are moving into a new phase of tighter monetary policy which will deflate any bubble talk,” said Kate Everett-Allen, head of international residential research. “Demand will start to wane as pandemic-amassed savings diminish and as monetary policy tightens,” she added in a separate report earlier this month.

Residential buildings in the Century Park neighbourhood in this aerial photograph taken in Shanghai in November 2020. Photo: Bloomberg

The S&P Global Property Index, which tracks 852 companies with a total market capitalisation of US$2.3 trillion, has risen 11 per cent this year, regaining all of the slump caused by the Covid-19 pandemic, according to Bloomberg data. The gauge, launched in December 1992, has since declined from a record set last month.

South Korea, Norway, New Zealand and Poland have all increased their key interest rates to tackle inflationary pressures and Everett-Allen said the UK and the US are expected to follow in the medium term by tapering its stimulus, damping buying sentiment.

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