Australia jumps 17 places in Knight Frank Global House Price Index

Eager buyers pushed Australian house prices 7.7 per cent higher over the past year – a greater rise than the global average, according to the latest instalment of Knight Frank’s Global House Price Index.

And much of that growth has been in the past quarter. At the end of 2016, annual house price growth across Australia was sitting at just 3.5 per cent, says Knight Frank.

The recent jump in price growth has pushed Australia up Knight Frank’s global growth rate rankings: it is now in 20th position, whereas at the end of 2016, it was in 37th place.

Eager buyers pushed Australian house prices 7.7 per cent higher over the past year.

The index, which measures the global mainstream housing market across 55 countries using data from official sources, found that global property prices rose, on average, 6.5 per cent in the year to March 2017.

Iceland led the index, recording 17.8 per cent price growth over the past year, while Hong Kong came in second with 14.4 per cent growth.

Nine other countries recorded double-digit price growth over the year to March 2017; a year earlier, only four countries achieved this.

Knight Frank says the results demonstrate property’s growing appeal to investors in an uncertain world.

“The past five years to March 2017 saw global capital growth average 2.9 per cent per annum, which is considered to be sustainable property growth,” said Knight Frank’s head of residential research in Australia, Michelle Ciesielski.

“But recent global instability and unrest has seen many investors investing their funds into not only safe haven countries but safe asset classes such as property. As a result we saw 6.5 per cent annual growth in the global housing market.”

Economist Stephen Koukoulas agreed that some broad conclusions about the global economy could be drawn from the report.

“The fact that most countries are recording house price increases well above the rate of inflation tells us that monetary policy is very easy,” said Koukoulas, who previously advised former Prime Minister Julia Gillard on economics and was chief economist in Australia at Citibank.

But he cautioned against relying to heavily on the report. “It gives us a broad guide,” he said. “But in a way, ‘So what’? We don’t necessarily know what’s driving the change in each country.”

As for the recent jump in price growth in Australia, Ciesielski said it was a reaction to the softer previous quarter.

“This was also experienced in Sweden, which is also considered a safe investment environment. It was in 22nd position with 6.1 per cent growth in Q4 [quarter 4] 2016 but rose to 15th position with 8.2 per cent growth in Q1 2017.”

She said: “Over the past five years Sweden grew at a similar pace to Australia. After a breather from significant growth, both markets picked up in Q1 2017.”

Koukoulas, however, said any growth spurt at the start of 2017 has been short-lived.

“Our house-price growth now appears to be cooling,” he said.

“There’s some evidence of auction clearance rates coming off a bit. And we’re seeing more properties on the market, which is another hint that perhaps people are looking to rush to the exit while prices are buoyant.”

He adds: “There’s also a big pipeline of construction that’s yet to be completed.”

Despite some divergence in opinion, neither Knight Frank nor Koukoulas thinks Australia is experiencing a bubble or is heading for a catastrophic crash in property values any time soon.

“Within a global marketplace Sydney does look cheap, there’s no doubt about that,” Knight Frank’s global head of residential, Lord Andrew Hay, told Domain in March. “And I don’t think you are heading for a crash.”

Koukoulas agrees. “I don’t think we’re gearing up for a big crash,” he said. “I’d hazard a view that we’re going to see two to four years where prices are flat to lower, and by lower I mean five to ten per cent from peak to trough.”