Properties in Hong Kong’s red-hot districts, The Peak and Southside, suffered falls as buyers exercised caution following eye-watering price growth of 119 per cent between December 2008 and June 2011, according to a report from agent Savills.

“Buyers are exercising caution ahead of anticipated price falls, and are seeking discounts on asking price,” said Yolande Barnes, head of Savills residential research and author of the Savills World Cities Index. “Such measures were unheard of just six months previously, and may indicate the market to come,” she warned.

Nevertheless, the region retains its crown as the world’s most expensive city, nearly double the price of a comparable property in London, number two on the index. But Hong Kong also stands out as the most volatile city, falling by 3.4 per cent in the second half of 2011, having risen by 87 per cent between December 2008 and June 2011, said Savills. Shanghai growth also slowed dramatically.

In contrast to the old world markets, particularly London and Paris, investor confidence in Asia’s luxury residential market cooled dramatically in the second half of 2011.

“Modest growth levels in an uncertain world should come as no surprise,” says Yolande Barnes, head of Savills residential research.  “But the outperformance by the more stable ‘old world’ markets of London, New York, Paris, Sydney and Tokyo compared to the ‘new world’ markets of Hong Kong, Shanghai, Singapore, Moscow and Mumbai is a pattern we expect to be repeated over the coming year.”

The Savills index measures a basket of properties representative of the dwellings needed to accommodate a small international business unit.  This allows for a true comparison of values across very divergent locations and markets, said Savills. 

“There is now clear evidence that the high performance, which saw new world markets grow by an average 95.4 per cent in the five years to the end of July 2011, comes at the price of higher volatility,” says Barnes.  “It is ironic, then, that wealth generation in the new world has created a flow of investment activity from East to West in search of wealth preserving safe havens and this is now underpinning values in the world’s most established old, ‘world class’ city markets.”

Old world stability

Most old world cities increased in price during the second half of 2011, with Paris prime property up sharply by 5.9 per cent, the effect of safe haven seekers looking to shelter their wealth in a relatively stable asset class, said the report. 

Barnes explains: “We think that the old world cities – particularly those long established as safe deposits of wealth such as London, Paris and New York especially,  may sustain pricing over the coming year, with the influx of global wealth in an uncertain world still having some time to run.

“New York is a city to watch.  It recorded growth of 2 per cent, correcting first half year falls.  Its residential real estate now looks extraordinarily good value and a relatively stable ‘buy’ opportunity within a global investment context.”