Luxury
property prices in Europe rose 6.7 per cent over the last 12 months despite
ongoing fears over the eurozone debt crisis, counter-intuitively overreaching
Asian values, which inched up just 2 per cent, according to property agency Knight Frank.

Despite
having some of the world’s highest gross domestic product estimates and healthiest economies, Asian property
prices cooled substantially over the last twelve months, according to the
quarterly Knight Frank Prime Global Cities Index, which monitors the top 5 per
cent of the mainstream housing market in each city.

Asian cities are no longer performing as a homogenous unit, said
the London-based firm. Much of this is due to the effect of government deflationary measures,
which are now starting to have a varying impact from city to city. For example, while prime property prices rose by 15.1 per cent annually in Jakarta, they fell by 17.9 per cent in Mumbai. 

Regionally,
Africa had the best yearly run, with top real estate prices up 8.5 per cent for
the year. Prime property in the Middle East registered zero growth for the year
to September 2011, at the bottom of the regions.

The sporadic results from Asia helped drag the global index down to its lowest level for over two years for the third quarter. While
prices for global luxury property increased by 4.3 per cent in the year to
September 2011, they rose by only 0.5 per cent in the third quarter - the index’s
weakest performance since the second quarter of 2009.

Asian prime property values have traditionally bolstered global values. Even with the cooling
off of the last quarter, luxury homes in Hong Kong are still 71.7 per cent
higher than at their low point in the last quarter of 2008, while Shanghai and
Mumbai have seen growth of 115 per cent and 220 per cent respectively from
their markets’ trough to peak.

Liam Bailey, head of residential research at Knight
Frank and co-author of the report, said that the results challenge the traditional
concept of prime property being a “safe haven” asset.

“There
are now clear signs however that luxury property prices around the world are
collectively softening for the first time since the global recession hit in
2008/09. Fears concerning unresolved sovereign debt issues both in the eurozone
and US look to be having an impact on buyer confidence,” he said.

“Although
the credit crunch and the resulting lending restrictions had a nominal effect
on the prime market in 2008/09, issues of affordability have arisen, even among
wealthy purchasers and a more cautionary climate is emerging,” he added.

However
he said that despite the current economic gloom, it is important to look at the
long-term view and consider the extent to which prime property not only
recovered faster from the 2008/09 economic downturn but has recorded some
phenomenal price rises in the interim.

For example, prime property prices in London and New York now stand at 37.2 per
cent and 25.3 per cent respectively above their recessional lows.

Despite Asia’s stuttering, Bailey believes that the
prime market will continue to be less exposed to the risks in the global
economy than most mainstream housing markets.

“Luxury homes in prime global cities will, we believe,
retain their safe haven reputation, but they will attract fewer speculative
investors seeking a short-term gain.”