Prime property prices increased by 1.9% in the year to September 2015, according to Knight Frank's Prime Global Cities Index with Vancouver and Sydney leading the rankings with standout performances.
The index, which monitors and compares the performance of prime residential prices across key global cities, reports an increase of 20.4% in Vancouver in the year to September 2015. A shortage of supply and strengthening local demand alongside foreign interest are the reasons behind this strong performance.
Sydney is not far behind with an increase of 13.7%, while Melbourne sits in fifth place with an annual increase of 9.4%. The weak Australian dollar, an undersupply of new homes and a strong local economy are behind Sydney's accelerating values, and to an extent Melbourne as well. In addition, Melbourne has been named 'The Most Liveable City in the World' for the fifth time in a row by the Economist Intelligence Unit.
Shanghai also recorded double-digit annual price growth, up to 10.7% in the year. The reversal of strict housing policies and the introduction of new fiscal measures, including tax and interest rate cuts, have fuelled demand in Shanghai.
However, looking beyond the top rankings, the overall performance of the index is less than robust. The index now stands 34.1% above its low in Q1 2009 but its annual rate of growth is slowing.
Director of Residential Research Australia at Knight Frank Michelle Ciesielski said, "The price growth shown in Sydney and Melbourne on this quarter's index is due to a number of factors.
"One factor is the lower Australian dollar, which has influenced the number of ex-pats buying back in Sydney and Melbourne, taking advantage of buying a prime property in these ideal conditions - ready for when they eventually return to Australia.
"Since the Significant Investment Visas, and more recently the new Premium Investor Visas, were introduced in July, foreign money has been flowing into Australia through off-shore buyers looking to secure a trophy asset on the waterfront or in one of the cities' more exclusive suburbs.
"There are still downsizers in the market, willing to wait to achieve that higher price they've been holding out for over the past few years, and as a result are making sure they're ticking off all the boxes for the criteria they want in a property.
"Finally, growth in prime property prices is also being driven by the limited supply of quality stock available in sought-after positions such as along the Harbour. However, we are expecting more higher-density prime stock to come to the market in Sydney with the completion of Barangaroo and the Circular Quay redevelopment," Ms Ciesielski.
Kate Everett-Allen, Partner, Residential Research at Knight Frank said, "The index's annual rate of growth has slowed significantly from 7% two years ago to 1.9%."73% of cities recorded positive annual price growth in the year to September down from 91% two years ago. Singapore was the weakest performing prime market tracked by the index for the seventh consecutive quarter, but the rate of annual decline has slowed from -15.2% at the end of of Q2 to -7.9% this quarter.
Analysis by world region highlights that Australasia leads the Prime Global Cities Index, with an average annual price growth of 11.6%, followed by North America at 8.5%. Europe has entered positive territory this quarter with an increase of 0.8%.
As QE unwinds and a US rate rise draws near, prime assets will remain on the radar of investors and HNWIs. The big question mark surrounds not Greece and the Eurozone but the low slowdown in the Chinese economy. Wealth from China will continue to flow into overseas property markets with the UK, US, Canada and Australia being key target destinations.