GLOBAL PROPERTY MARKET SEES SHARP DIVERGENCE

AVERAGE global house prices rose by 2.8 per cent in the year to December 2010, according to the latest data from The Knight Frank Global House Price Index.

Growth was led by Asia-Pacific, up 7.5 per cent, the Middle East, up 5.3 per cent, and South America, up 3.8 per cent, but overall prices were down from the 3.1 per cent recorded in the third quarter of the year.

The weakest region was North America which saw no change in values in the previous 12-month period, the index also shows.

The fastest risers in terms of countries were Hong Kong, up 20.1 per cent, where the government is fighting to pull speculative price growth under control, followed by Latvia, up 16.9 per cent, which is bouncing back from an incredible 70 per cent fall in prices during the credit crunch and Israel, up 16.2 per cent, which is still benefitting from considerable inward investment from overseas investors.

According to Liam Bailey, head of Residential Research at Knight Frank, there are relatively benign conditions, with average annual price growth across the world at a modest level but the average hides big regional and country level differences.

'More concerning is the fact that this annual figure hides the fact that a growing number of countries are seeing negative quarterly price movements,' explained Bailey.

His analysis shows that in the second quarter 2010 the proportion of countries in the index recording negative quarterly growth was less than a third at 31 per cent, but in the third quarter it was 35 per cent, and in the fourth quarter this rose to 41 per cent.

'Across an increasing number of European countries and also in the US markets were weaker in the second half of 2010, following a brief revival in the previous 12 months,' said Bailey.

'This trend is being reinforced by weaker results from Asia-Pacific, with India, Taiwan and Japan all recording negative price growth in the second half of 2010. The key trend at play in the global market is the unwinding of the stimulus packages put forward in 2009 in Europe, North America and Asia-Pacific,' he explained.

'The impact of hot money created by quantitative easing may be dissipating, especially in Asia, where the 30 per cent, 40 per cent, 50 per cent and even higher annual rates of growth, which were common in some Chinese and Indian cities a year ago, have now cooled considerably.

'In Europe and the U.S., by contrast, the last vestige of the stimulus, namely ultra-low interest rates are regarded as critical to the ongoing security of the market. As an example, discussions surrounding an impending rise in the UK rate from 0.5 per cent to 0.75 per cent are enough to cause panic among housing market commentators,' he added.