Hong Kong is most expensive place in the world, even for the wealthy

New World residential property markets are a riskier investment but also bring higher rewards for investors, according to a new global survey.

The characteristics, type and quality of a city’s residential real estate stock are a key component of its global competitiveness and only a small number of world cities can count themselves among a truly global market, sought by the world’s richest households and behaving almost like a separate asset class to a worldwide investor audience.

The Global Cities survey from international property adviser, Savills, demonstrates that leading cities in new world emerging markets have significantly outperformed the more established prime residential markets in ‘old world’ economies over the last five years, but at the expense of greater volatility.

Savills survey is unique in comparing residential property prices, not on the basis of equivalent properties in each city (which are sometimes impossible to find) but on the basis of equivalent households. Their total value and rent measures are based on a group of people who might typically relocate or be employed in any one of the cities studied.

On this basis, Hong Kong was found to be 55% more expensive and New York 15% cheaper than London on current sterling values. The analysis also reveals that these so-called global cities all significantly outperform the broader market of their countries and act as a real funnel for wealth, particularly internationally generated wealth.

The Savills study put the spotlight on four global cities, two established, two emerging, and found the cost of a comparable ‘basket’ of properties was now significantly higher in the emerging global cities. Instead of the usual standard price per square foot measure used by other indices, the company has analysed the cost of an ‘executive unit’ or basket of properties comprising the typical homes of a regional chief executive, two local directors and four locally employed administrative staff.

In Hong Kong, the total cost of the basket of seven properties is now £15 million, compared to just over £10 million in Moscow, £9.6 million in London and just £8 million in New York.

‘Our analysis reveals that these four global cities each significantly outperform the broader market of their countries and act as a real funnel for wealth. They do this by attracting money from a global elite of billionaires who invest in real estate for different reasons and with a different source of wealth from the rest of the population,’ said Yolande Barnes, head of Savills Research.

She added that the analysis of the properties occupied by the super rich demonstrates that the global billionaire inhabits an international ‘Richistan’, very much detached from the rest of the market.”

 The average value of the homes occupied by the global super rich is around double that of a regional chief executive on a standardised price per square foot measure, ranging from almost £6,500 per square foot in Hong Kong to almost £2,500 in New York, just over £2,500 in Moscow and £3,000 in prime London.

 Hong Kong is the most expensive centre for every household type, including the global billionaire. Surprisingly, for those working at administrative and director levels, London looks to offer good value housing in a global city context.  It is the cheapest location for local employees at this level, who are likely to occupy the more far-flung ‘metroland’ suburbs which characterise most of the outer boroughs.

As short a time ago as 2005, the costs of residential accommodation in each of the four cities looked broadly similar, with Moscow looking a bit of a bargain. By the end of 2010 though, Hong Kong and Moscow are considerably more expensive than London, and New York is the bargain.

In Moscow, the cost of buying homes for an ‘executive unit’ has doubled and in Hong Kong, it has nearly doubled. This very high growth in the ‘new world’ cities has been accompanied by much more volatility (greater variation of annual returns) than in the old world where growth, or lack of it, has been more stable.