Can London lead the way out of the worldwide luxury property market slump in 2020?

Heading into 2019, many economists were predicting a “new normal” of higher interest rates and more expensive debt. Yet, as Knight Frank's Kate Everett-Allen points out, that failed to eventuate. “Instead, we have seen 144 interest rate cuts globally in the last year, with quantitative easing (QE), once an extraordinary measure, now back on the agenda in the US and the eurozone,” she said.

With interest rates remaining lower for longer, the attraction of property ownership would seemingly be reinforced. Despite a year of luxury launches and headline sales of “trophy” homes, Knight Franks research shows that, at the prime end of the market particularly, sales volumes in the world’s top tier cities largely drifted lower during 2019. Prime price growth also stumbled across many cities. According to the latest Knight Frank Prime Global Cities Index, which tracks 45 markets, the average annual rate of growth in the year to the third quarter of 2019 was just 1.1 per cent — indicating that top end home prices have been rising at their slowest rate in a decade.

Knight Frank’s analysts cite protracted Brexit negotiations, the US-China trade war, climate change and the Hong Kong protests for the uncertainty in 2019. But what about 2020?

Paris leads the firm’s prime residential forecast for the new year, with price growth of 7 per cent predicted. Economic stability, low interest rates, constrained prime supply and strong tenant, as well as second-home demand, are expected to underpin price growth, with further stimulus provided by the Grand Paris project, Europe's largest infrastructure initiative, and the 2024 Summer Olympics.

Tying for second place are Berlin, Germany, and Miami, US, each with forecast prime price growth of 5 per cent. Strong demand (both domestic and international) and regeneration should keep Berlin high in the rankings, while Miami should benefit from Florida's state and local tax deduction, which attracts US tax migrants from high tax states such as New York and California. “With no income tax, no inheritance/estate tax and favourable corporate tax rates, Florida — Miami in particular — is back in the spotlight,” says Everett-Allen.

Despite the bush fires in Australia, Knight Frank forecasts 4 per cent growth for property in Sydney, and 3 per cent for Melbourne, qualifying that this refers to the city areas only.

Michelle Ciesielski, head of residential research, Australia, says: “Regional towns impacted by the bush fires are likely to show a decrease in values over the medium term. This is not likely to impact prime, or metropolitan residential values in Sydney and Melbourne.”

But it’s a different story for regional areas, she says.

“As we’ve experienced with bush fires in the past, it will take some time for new visitors and homebuyers to return to regional areas of NSW and Victoria,” said Ciesielski. The densely populated towns on the East Coast — among the worst-hit areas — are also sought after by retirees from Sydney, Melbourne and Canberra, she adds.