After a slow year, the prime residential property market is again showing gains. The index increased by 2.1% in Q3, with the majority of cities experiencing positive growth. Manila, Dubai and Shanghai saw the most significant upticks, while big cities in the US registered falling prices. Within this mixed bag of results, luxury real estate prices look set for moderate price gains until interest rates begin a downward trajectory in earnest.
First gains in a year
According to the latest Knight Frank Prime Global Cities Index, luxury property worldwide saw a 2.1% price growth in Q3. The uptick in the 46 markets is the highest year-on-year increase since Q3 2022. It’s also significantly higher than the 0.2% registered in Q1 this year.
Over two-thirds of the cities in the Index experienced price growth over the last year, with slightly fewer seeing gains in Q2. The report attributes this discrepancy to “ongoing uncertainty over inflation and interest rate risks”. As a result, it predicts constraints on luxury house price growth in the medium term.
Leaders in the prime residential property market
Manila headed the list of cities experiencing the biggest gains in the last year. In the Philippine capital, house prices soared by 21.2%, boosted by strong domestic and international investment.
Dubai came in second place, with year-on-year growth of 15.9%. However, the emirate saw almost zero change (0.7%) in quarterly terms, indicating a much more moderate market.
Completing the top trio was Shanghai, where prime residential prices went up by 10.4% in the year. Unlike Manila and Dubai, the Chinese metropolis registered buoyant growth between Q2 and Q3, when property values rose by 4.5%.
Mixed results for European prime property
Europe saw varied results in the Index in Q3. Spanish property in Madrid, for example, experienced increases of 5.5% annually and 2.2% quarterly, taking it to fifth place in the table. On the other hand, Stockholm real estate prices plummeted by 7.7% in Q3 compared to Q2.
London property prices remained on their downward trend, with a 1.7% drop in the year and a 0.7% dip in the quarter. Edinburgh and Geneva recorded broadly similar patterns.
The ups and downs in luxury US real estate
San Francisco stood at the bottom of the table after a house price drop of 9.7% in the year. Nonetheless, the city’s real estate values recorded a rise of 3.8% in quarterly terms, indicating a shift in market trends. The New York prime market was also lacklustre, with a 4% price fall in 12 months and a negligible 0.3% change in the quarter.
However, Miami showed the opposite, prompting Knight Frank to note that “the trend for wealthy investors to target Florida continues”. Miami real estate values rose by 2.8% between June and September.
What’s next for prime residential prices?
The Q3 Index clearly shows demand in most of the world’s luxury markets. However, analysts point to continued uncertainty regarding inflation and interest rates. As a result, they caution that the latest improvement in house price growth “shouldn’t be overstated”.
Few central banks have lowered interest rates this year, with the notable exception of Brazil. As investors are aware, higher interest rates translate to “lower asset price growth”. As a result, Knight Frank believes that consolidation of the recent upward trend will only be possible with lower interest rates, “unlikely before mid-2024”.
(Source: Knight Frank)