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Are the World's Great Cities Becoming Separate from the Rest?

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Are the World's Great Cities Becoming Separate from the Rest?

By - Tuesday 22 March 2011

The world has been forever changed by the first and worst international financial crisis since World War II and World War I before it.

One of the main differences is that in the wake of the crisis, emerging markets are becoming dominant in the global economy. HSBC CEO Michael Geoghegan recently predicted that emerging markets would have more economic firepower than their established counterparts measured by purchasing power parity within 3 years.

The most significant change is how it has not only highlighted the gap between the affluent and the impoverished but widened it as well, this is especially apparent when you look at the levels of affluence in capital cities, major cities and other affluent areas, compared to the rest of their home nations.

Take the UK. In London only the affluent in society can afford to buy a house. For months before the downturn crossed the Atlantic to crash UK home prices, we had talked about how the London housing market had overheated, pricing middle-class families and first time buyers out. Normally a correction like the one that started in 2007 would have brought prices back to manageable levels, but this was no ordinary correction.

Wealthy buyers from the middle-east, Eastern Europe, and Asia have flooded into London to capitalise on the weakened pound. Because of the combination of weak supply and foreign buyers, prices in London and the affluent south/south west grew strongly again from about the first quarter of 2009 to the second half of 2010.

Meanwhile prices in the less affluent north and much of the rest of the UK stagnated during the same period. But it is not just more of the rich getting richer; more and more people are choosing to live in the city, and this is also changing the type of city centre property that the wealthy are buying, as developers are forced to build upwards instead of outwards.

A pinnacle to this, and the rich/poor divide was recently completed in London. One Hyde Park, the world’s most expensive block of flats, where four buyers have already paid 1.35 million each for a penthouse overlooking Hyde Park. This just a few months after Indian billionaire Mumbesh Ambani built the world’s most expensive private residency thought to be worth over 1 billion USD. But not a mansion or even a castle had he, but a massive sky-scraping tower block in the centre of Mumbai. And it is not just in India, the UK or London.

In France, property prices in Paris grew much faster than the rest of France - much faster. Paris apartment prices (per sqm) grew 9.7% in the year to end the third quarter of last year according to the national association of estate agents (FNAIM), while the national institute for statistics and economic studies (INSEE) put growth for the period at 13.8%.

Research also shows strong growth in the areas immediately surrounding the capital, including a 12.07% y-o-y growth in Ile de France - the entire Parisian metropolis not just the city itself - a 11.6% year on year growth in the Petite Couronne (Little Ring), and a 9.12% growth in the Grande Couronne (Large Ring). The stark difference between this area and the rest of France cannot be missed in the fact that prices for France as a whole grew just 0.6% during the period.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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