Several cities that many would consider underdogs appear to be on track to outperform the rest of the decade in terms of home price increases.
According to Real Estate Foresight, a Hong Kong-based independent property analysis firm, Tokyo has the highest residential returns prospects in the next five years.
Smaller cities like Washington and Frankfurt come in second and third, respectively, with Sydney and Berlin rounding out the top five.
While it's rare to see secondary or out-of-favor markets (with the exception of Sydney, which is a perennial favorite) rank so high in terms of property prospects, it's even more shocking to see which cities rank last. houses for sale
According to the company's report, Hong Kong, Singapore, and London would have the worst results over the next five years. Hong Kong is the "city we love to live in," according to Real Estate Foresight founder and former global head of real estate markets at Reuters Robert Ciemniak, but it appears to be doomed to low returns due to its very high rates, low median incomes, short leaseholds, and current negative regulatory climate.
Many institutional investors have predicted that Tokyo will be a good performer. While the city may not be their first option, it is a safe bet that property prices will be buoyed by the strong performance of Japanese stock markets and optimism about Prime Minister Shinzo Abe's economic policies.
According to the property site Homes, borrowing costs in Japan remain near zero, leaving an appealing gap when compared to yields that average 6% in a neighborhood like Minato-ku. Minato is home to 49 embassies as well as the headquarters of major Japanese corporations including Honda, Sony, and Toshiba.
The company's analysts, Ciemniak and Green Investments portfolio manager Diana Olteanu-Veerman, find that "the key strengths for Tokyo as a city are relatively low valuations and vacancies coupled with high median household income and the large scale of its metropolitan economy."
Despite concerns about long-term economic prospects and ageing demographics, the Japanese capital has a stable regulatory climate, a large number of wealthy citizens, and a healthy working-age population. Economic growth does not equal that of Asia's turbo-charged cities, but it is comparable to that of major European and American cities.
These conclusions are based on a review of the city's global appeal, local economic patterns, demographics, and current property prices.
In terms of residential prospects, New York and Paris are in the center of the pack, while Shanghai and Beijing are in the bottom fifth.
Property investors will have to start factoring in the long-term certainty of the end of heavy central-bank money printing, which has sparked the growth of many types of assets, including real estate, as we head into 2014. This is particularly true in places like Hong Kong and Singapore, which were spared the brunt of the global financial crisis but were able to import low US interest rates thanks to currencies that tracked the greenback. As a result, home-buying mortgages and borrowing rates have been highly appealing.
Of course, Japan is an exception to the decline in central bank funding, as Abe and the Bank of Japan have just launched an ambitious reform and asset-purchase program aimed at ending the country's more than two decades of economic stagnation.
After losing about 5% last year, Singapore real estate is expected to lose another 5% or so in 2014, with Hong Kong homes losing five to 10%, according to Knight Frank's prime global residential forecast for 2014.
Investment banks have been much more bearish than the property brokerage, which makes its money from property transactions. Residential property in Hong Kong is expected to fall 15 to 20% in a year, according to Deutsche Bank, with Barclays predicting a 30% drop.
According to Knight Frank, Dubai, which was hit so hard by the global financial crisis that expatriates fled in droves, leaving keys to apartments with brokers and leased cars at the airport, would be the best performer this year, rising by 10 to 15%. The Real Estate Foresight study did not include Dubai.