In recent years, housing prices in major global cities have become increasingly synchronized. This is because luxury housing in global cities has become a distinct asset class that attracts not only individual buyers but also investment funds. The prices are more affected by global capital flows rather than local factors. Cities like London, New York, Toronto and Sydney are financial hubs open to international capital, so housing prices move in sync. The capital inflow from China, Russia and other emerging economies is an important driver. But now several factors including rising bond yields, mortgage tightening, and more restricted capital flows have led to falling housing prices in many overvalued global cities.
Global cities luxury housing has become a unique asset class
In the past, housing was considered as a hedge against inflation. But now luxury housing in global cities acts more like low-risk government bonds, becoming a safe haven for global capital. In addition to individual buyers, private equity firms and investment trusts are also investing in them. The prices are less correlated with local conditions but more driven by global factors like yields of top-rated government bonds. The global influence is especially strong in open financial hubs such as London and New York. It has spread to smaller European cities like Amsterdam too.
Emerging market capital propelled housing price growth
In recent years, the demand from China, Russia and other emerging economies has been rising rapidly. Buyers are willing to pay high prices to find a safe place to store wealth. Research shows that political uncertainty in Russia, Middle East and Africa can predict prime London housing price increases. The impact spills over to less expensive neighborhoods too. For example, if a tycoon buys a luxury house, it can drive up nearby smaller property prices. This foreign capital has also fueled housing booms in Australia and Canada.
Policy changes and higher yields cool down global housing markets
But now the boom seems to be over. Global city housing looks extremely expensive. The average rental yield of global investment homes dropped below 5% for the first time in 2016. Housing prices relative to income are way above historical average in cities like London, Auckland, Amsterdam and Toronto. As top government bond yields rise, mortgage lending tightens, and capital flows more restricted, prices in overvalued cities are coming down. There is also a ‘waterbed effect’ that cooling in one market can lead to heating in another interconnected market as investors look for better value.
Chinese firms should adjust strategies for overseas expansion
The synchronized global housing market shows Chinese companies need to respond to international challenges when expanding overseas. They should continue to innovate, understand target markets deeply, and adjust strategies and operations locally. Building technology and branding strengths rather than competing on cost is key. Utilizing cross-border e-commerce and tapping new consumption trends also provide opportunities.
Global city luxury housing has become an internationally traded asset class. Emerging market capital propelled its growth earlier. But policy changes have led to recent cooling. Chinese firms need flexible strategies when investing overseas.