Prime Global Cities Index in times of Covid-19: Madrid in the red zone, but it could be worse

The latest quarterly house price index of global cities produced by international real estate firm Knight Frank shows Madrid in the red zone with house prices on the slide, but not as bad as other European cities like Dublin and London.

At the end of Q2, high-end house prices in the Spanish capital were down 1.5% in a quarter, and 0.9% in a year, according to Knight Frank, using data from their global research network. You can see the full raking in the table below.

Given the unprecedented economic situation the world is going through in the light of Covid-19, which has hit Spain particularly hard, and caused an 18.5% decline in Spanish GDP in Q2 (compared to an EU average of -11.9%), a less than 1% decline in prime property prices in Madrid sounds trivial in comparison. It could have been much worse.

“This is the first opportunity we have had to take the pulse of prime residential markets globally since the Covid-19 pandemic hit large parts of Europe and the Americas,” explains the report.

Whilst there were some signs of the virus dragging down prime real estate markets around the world, with the overall index up jus 0.9% yoy, its “lowest rate of growth in 11 years,” say KF, and -0.6% on a quarterly basis, the overall picture shows prime property to be surprisingly resilient in the face of the coronavirus pandemic.

As far as European cities go, London was the worst performer in the 45-city index, down 5% yoy, and 3.7% quarterly, followed by Dublin on -3.8% and -0.6% respectively.

The best performance in Q2 came from Manila in the Philippines, up 14.4% yoy, followed by Tokyo, up 8.6%.

Stockholm was the best performing European city, up 4.4% annually, but down 3.3% in a quarter.

Madrid the only city to make the grade

madrid prime property prices

Madrid is the only Spanish city included in Knight Frank’s Prime Global Cities Index. Globally famous Spanish cities like Barcelona, Seville, Palma and Valencia don’t make the cut, whilst Australia has six cities in the index, so I’m curious to know the criteria for inclusion in this index. Being a city in Australia certainly looks like one of them.

Assuming Knight Frank’s index is a fair reflection of the current state of prime global city house prices, why are high-end house prices in global cities not tanking with the rest of the economy?

“It is unlikely we will see a large volume of distressed prime sales as in 2008,” explains the Knight Frank report put together by Kate Everett-Allen, head of research. “Lending criteria is tighter, new supply is constrained in several cities, interest rates are low (negative in some markets), plus furloughing schemes and mortgage holidays are cushioning incomes and repayments.”

You might also look at the current price of gold, currently at an all time high of close to $2.000 per ounce, up 24% in six months. Prime real estate is a bit like gold in the mind of investors. It’s a safe haven (in some countries), and hedge against inflation. Looking at the way governments are shoveling money out the door to deal with the Covid-19 crisis, before unwinding the spending splurge on the 2008 financial crisis, perhaps wealthy investors are looking at prime real estate as one of the best bets in town.

You can read the full report at the KF website here.

madrid prime global cities ranking

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