It’s easy to get caught up in the state of our own economy, with the weakened housing market, high cost of living and oversupply of listings leaving many of us feeling like we’re the only nation doing it tough. But according to Knight Frank Global Head of Research Liam Bailey, there’s a lot of similarities between our market and the rest of the world.

“Most markets are moving at slightly different speeds, but there is a general trend, and I think it's fair to say that the covid pandemic is still having a massive impact.”

“We had that initial surge in demand, which impacted most markets and then we saw a big boom in prices. Then there was the reaction when inflation and interest rates picked up and that led to quite a big slowdown.”

Bailey says things got even more complicated from there.

“There's been so many disruptions that stemmed from covid too, because it also impacted supply chains and construction.”

“Lots of markets around the world have experienced a big hiatus in construction and new build activity.”

Bailey believes many economists have been left surprised with just how long the tail effects of the pandemic have lingered for.

“Inflation is down in most markets now, but the central banks are still nervous about cutting interest rates for a number of reasons.”

Bailey says New Zealand isn’t alone in experiencing a stalled housing market and comes at the same time as our Reserve Bank opted to hold the Official Cash Rate steady at 3.25% right before annual inflation hit a 12-month high of 2.7%.

Were any markets immune from the downturn?

Bailey says there were two big stories of success over the past 2-3 years in terms of the strength of growth.

“The two standout markets were in the Middle East in Dubai, and then in America it was Florida, and in particular, Miami.”

“Those two markets saw incredibly strong growth, well over 100% if not 150% growth in prices over five years.”

As for more recently, Bailey says Europe has started to see some growth.

“The markets that picked up more recently at the luxury end have been in some of the European locations. Paris, Madrid, and even Barcelona and Lisbon have seen relatively strong growth.”

“Paris will be interesting to watch over the next few years, because they haven't really had a large development sector and there's lots of limitations on building there because it's so historic. But there's been a couple of new schemes coming forward, which are beginning to sell in the market.”

What are the biggest trends right now?

Bailey says recent Knight Frank wealth report surveys have revealed that younger generations and younger affluent groups within the population find building large property portfolios less appealing.

“It's interesting, and I think there is something in that, in terms of younger generations, maybe wanting to have a slightly simpler lifestyle, and not wanting to have the work that comes with managing large portfolios of second homes.”

The other big trend that’s emerged has been the rise in popularity of branded residences.

“This is mostly the hotel-led brands like the Four Seasons.”

“There's lots of demand for these properties and what’s interesting is the breadth of brands trying to get involved in the sector, and how they're trying to quantify the value they have.”

Bailey says the residences are increasingly popular in the Middle East, US and Europe.

“We’ve begun to see lots of developments in big cities across resort locations in Europe, and I know that Australia has begun to take interest too.”

As for New Zealand, Bailey says named residences don’t necessarily have to be run by known hotels or big brands.

“There's no hard and fast rule in terms of what is a branded residence, apart from the fact that, normally they’re applying a brand to a group of residential units - whether they're villas or apartments.”

What factors are affecting the global market right now?

Bailey says what happened in the first quarter of this year had a big effect on the market.

“US tariffs and Trump's return to the presidency certainly unnerved markets, and I think gave buyers pause for thought.”

“Obviously there's a knock on in terms of the impact on interest rates, and I think most measures of consumer confidence and business confidence also became weaker.”

Bailey says things have slightly improved since then, mainly because there appears to be less surprise from Trump’s ever-changing policies.

But he does believe that regardless of whatever challenges the market faces, quality houses will always shine through in every country.

“Best in class properties and best in class developments will always sell well. It's normally secondary stock or secondary locations that will become just a bit more difficult to shift in those environments.”

When will things improve?

Bailey says there has been the assumption from many economists that interest rates in most locations will naturally come down, and property markets will do well following that.

“But the inflation story has been much more complicated than that, and it’s been very sticky. As a result, the central banks are nervous about fuelling a second round of inflation and are taking their time to make decisions around cuts.”

There’s also a belief that the market is fragile, and the risk of something else derailing it is high.

“We saw this during the reaction of markets a few weeks ago to the tensions between Israel and Iran. There was a fear that oil prices would spike. They did a little bit, but they still came back down quickly.”

“I think that really speaks to the fact that it doesn’t take much at the moment for the global economy to be knocked off track.”

Bailey says that means any shock is being compounded.

Is New Zealand the only market doing it tough?

It’s easy to get caught up in our own economic troubles, but Bailey says we aren’t the only ones struggling to bounce back.

“It wouldn’t be difficult to recognise similar conditions in the UK and most of Europe now. Over there the cost of living rose considerably over the past five years, and even if the rates of inflation are low now, by comparison, prices haven't come down.”

“Budgets are stretched in most parts of the world - so you’re not alone.”

Not only that, but Bailey says overseas governments are also struggling to balance the books.

“In the UK, debt is actually increasing, not decreasing, and the cost of servicing that debt is also increasing because interest rates have been higher.”

“The trends New Zealand is experiencing are not unique and are reflected in lots of markets.”

What will the next six months bring?

Bailey says despite a slow recovery, the expectation for the global property market is that interest rates will continue to go lower.

“Inflation should be under control by central banks. There's always still the risk of wage inflation though - particularly in some countries with public sector pay settlements.”

“But I think despite those risks there’s an expectation that the trajectory is towards lower inflation over time, and that probably means that you’ll begin to see a slow improvement in market liquidity.”

Bailey says it still pays to expect the unexpected and knowing that it should encourage people to be conservative when it comes to borrowing.

“I think the market has become more unstable, so you have to think carefully about what risk you're prepared to take on and position yourself so you can still pay down debt and reduce exposure.”