The latest Knight Frank Global House Price Index, Q2 2010 shows that residential property prices increased in 69% of the locations monitored compared to the previous 12 months to the end of June 2010.

The Asia Pacific region continues to experience the strongest price inflation; on average prices rose by 14.1% in the past year and the top performers are Singapore, China and Hong Kong however their quarterly rate of growth suggests these heated markets are starting to cool.

Europe continues to record the weakest performance of all world regions, although it is an improving picture - up from -4.1% in Q1 2010 to -0.1 in Q2 2010.

Liam Bailey, head of residential research, Knight Frank, said:“Each quarter we are presented with further evidence that the impact of the global recession on the world’s housing markets is diminishing. In Q2 2010 annual price inflation increased in 69% of the locations monitored in Knight Frank’s Global House Price Index compared to 53% last quarter and 19% a year earlier.

“A slight convergence is occurring with the disparity between the top and bottom of the table being less pronounced than a year earlier. On the one hand, government intervention, particularly in the heated Asian economies, is starting to have the desired cooling effect as indicated by the latest quarterly results. On the other hand, economic stimulus measures put in place by many western governments such as ultra-low interest rates, first time buyer concessions and targeted support for banks have encouraged house buyers and this increase in demand has helped push prices higher, albeit moderately so.

“There is a sense that the headline grabbing double digit price changes that almost became the norm in 2008 an d 2009 are lessening in scale and number. Prices are beginning to return to something close to a “sustainable” level as the relationship between prices, rents and incomes falls more in line with their long-run average.

“The performance of the global housing markets can still easily be grouped by world region with the Asia Pacific countries occupying the top of the table and the European economies the bottom. However, sub-divisions within these groups are starting to emerge. In Asia for example, the housing markets of Singapore, China and Hong Kong are clearly outperforming their neighbours in India, Indonesia and Japan which are ranked in positions 26, 29, and 42 respectively. In Europe too, there is a clear divergence with the Nordic countries recording annual growth of between 8-11% while most of their Baltic and Southern European counterparts are experiencing negative growth.

“Aside from Asia Pacific’s strong performers, South Africa and Canada represent some of the most heated housing markets recording annual price growth of 14.8% and 13.5% respectively. There is speculation as to whether Canada ’s housing market is entering ‘bubble’ territory, mindful of this the government has already raised the base rate on three occasions this year and has reduced the maximum allowable amortization period from 40 years down to 35 years.

“ The potential risks to future growth are many and varied. For western economies the availability of new funding, the scale of austerity measures, earnings and employment growth will prove critical to the health of their housing markets. In Asia, a lot hinges on how far governments intervene in fiscal policy. In China for example, the government’s recent decision to increase interest rates to 5.56% from 5.31% - the first rise since 2007 - represents a serious attempt to curb both inflation and its investment-led economy,” Bailey concluded.