The image of a duck floating calmly on the water while its feet paddle furiously underneath is an apt metaphor for the global luxury real estate market thus far in 2024. The market has enjoyed a solid first half devoid of major turbulence, and the overall tide has even risen following the market correction that occurred between late 2022 and 2023. But, as is often the case, micro markets, like a duck’s feet, are churning busily, driven by numerous factors that can ripple out to a wider effect during the second half of the year.
To get a better handle on these factors, Christie’s International Real Estate surveyed our network of luxury real estate firms around the world. The resulting Global Luxury Mid-Year Forecast is based on commentary from more than three dozen broker-owners in 18 countries on five continents.
Market by market, circumstances vary widely, influenced by traditional metrics such as supply and demand, as well as geopolitical factors like the ongoing wars in Ukraine and Israel. But our brokers’ comments coalesce around three global trends that bear watching for the remainder of 2024:
- Interest Rates and Inflation
- Tax Regimes and Government Policies
- Uber-Luxury Momentum
Waiting…and Waiting For Lower Rates
There are those who say interest rates have little bearing on the luxury market, as evidenced by the number of high-end buyers transacting with cash. If only that were true. The reality is the luxury market is but one link in the housing chain, and while that link may be durable, it is nevertheless impacted by conditions that occur along the line.
It is undeniable that interest rates have gummed up the housing works for the better part of two years, preventing much-needed inventory, including luxury homes, from reaching the market. But encouraging signs are emerging. On June 5, Canada became the first Group of Seven (G7) nation to cut rates, lowering its benchmark by 25 basis points amid soft labor data. One day later, with annual inflation clocking in at 2.6% (down from a peak of 10.6%), the European Central Bank (ECB) followed suit.
In Germany, falling rates have not yet resulted in the loosening of inventory that buyers need – or the price lift desired by sellers – but market declines appear to be neutralized.
“Mortgage rates have fallen sharply since the beginning of November 2023,” said Sabine Lenzer, Head of International Sales for RIEDEL Christie’s International Real Estate in Munich, where a 10-year home loan is currently in the mid 3% range, a drop of around 20% since last November. As a result, Lenzer said, “We are currently seeing the first potential buyers returning to the purchase market, but not yet in such large numbers that significant demand will lead to rising prices. However, sideways movement can be observed.”
In the U.K., Leslie Schoeder, Head of Residential Research for Christie’s International Real Estate affiliate Carter Jonas, noted that inflation is “falling at a faster rate than expected, resulting in interest rates remaining stable, and now there are projections for a quicker decline. Localized price drops have been milder than originally feared, and the luxury market as a whole has remained relatively resilient.”
However, it is too early to say the global market has turned a corner on rates. Immediately following the ECB action, a red-hot jobs reading from the Bureau of Labor Statistics all but dashed hopes of a summer rate cut in the United States. And in Australia, Darren Curtis of Christie’s International Real Estate Sydney is looking out as far as mid-2025 as a worst-case scenario for a rate drop.
Will Davis, President and Broker in Charge of The Litchfield Company in Pawley’s Island, South Carolina, summed up market conditions saying, “The cash buyer is alive and well, but until interest rates come down, the luxury residential market will have its challenges.”
This sentiment is shared by U.S. brokers from New England to Miami to Austin, Silicon Valley and Beverly Hills. They measure the impact of rates not only in terms of buyer demand, but also inventory and consumer confidence. While luxury buyers and sellers continue to transact, the mood is cautious.
The Push and Pull of Tax Regimes
Tax considerations have always played an important role in luxury property transactions around the world, but the current environment is especially dynamic. No fewer than a third of the Christie’s International Real Estate affiliates in our survey cited the influence of such regimes, and other related government policies, on markets.
At the top of the list is the phasing out of the U.K.’s tax regime for non-domiciled residents (colloquially known as non-doms). The law, which dates back more than 200 years, has allowed many wealthy U.K. residents to avoid tax payments on income and capital gains earned abroad, if they claim permanent residency outside the country. Recent figures peg Britain’s non-dom population at approximately 69,000. Starting in 2025, they will only be able to enjoy the exemption for four years upon moving to the U.K. instead of the current 15.
The change is stirring speculation that some of these residents could leave the U.K. for countries with more favorable tax laws such as Switzerland, Monaco, Italy, and the Channel Islands nation of Jersey.
“Switzerland stands out as a haven of stability and predictability. Its business-friendly environment, quality of life, and dedication to innovation and sustainability make it an attractive destination for those looking to shield themselves from global fluctuations,” noted Maxime Dubus, Managing Director of SPG One SA, based in Geneva.
The issue has even popped up on the radar as far away as the Caribbean. “There may be a number of Brits moving due to changes in the non-dom laws,” said John Christie, CEO of HG Christie Ltd. in the Bahamas.
But U.K. brokerage firm and Christie’s International Real Estate affiliate Carter Jonas does not believe the new law will have much effect.
“The impending abolition of the non-dom status is unlikely to usher in a new era for the U.K. property market. A year out from the 2025 deadline we are yet to see any significant effect on foreign investment in U.K. real estate,” said David Ruddock, Head of Residential Sales Operations for the firm. “The prime property sector, after initial alarm to the proposals, is now taking a more measured view. Experts predict a marginal exodus of high-net-worth individuals, estimated at a mere 0.3% of current non-doms, with most others citing the traditional allure of U.K. property investment, such as market stability, lifestyle opportunities, education and culture, as outweighing taxation concerns.”
Another market that just sunset a popular tax break for foreign buyers is Portugal, where the Non-Habitual Resident (NHR) regime ended last year. The NHR was introduced in 2009 to attract human capital and real estate investment amid the global financial crisis. After 15 years, the program is essentially a victim of its own success. Now the government’s focus has shifted to housing affordability.
“With the end of the fiscal benefits for foreign residents, 2024 had a weak beginning,” noted Joao Cilia, CEO of Porta da Frente Christie’s International Real Estate in Lisbon. However, Cilia said the outlook has brightened for the second half thanks to falling interest rates and strong demand from Portuguese buyers – the goal of the policy changes. “Market confidence has increased among the local population, and we expect a recovery in the next months. The new government may also bring back some programs that target international investors,” he said.
Other markets that are feeling the impact of tax policies on luxury purchases include Canada, which has recently dealt with foreign-buyer levies in Vancouver and a new mansion tax on high-end home purchases in Toronto; and Los Angeles, where the mansion tax that went into effect in April 2023 is still a drag on the market.
“It has definitely picked up since 2023, but with interest rates and measure ULA [the mansion tax], we are still dealing with a level of sluggishness in our luxury market,” said Aaron Kirman, CEO of Christie’s International Real Estate Southern California.
Of course, closing loopholes in some markets creates opportunities in others. The United Arab Emirates continues to see an unprecedented inflow of high-end buyers in 2024 after welcoming some 4,500 millionaires in 2023, thanks to its 10-year, automatically renewable Golden Visa program. And Massimiliano Bulzoni, Managing Director for Exclusive Real Estate in Rome, Milan and Naples, reports that Italy’s flat tax has been successful in repatriating Italians living abroad, as well as attracting foreigners who establish primary residency.
The bottom line: money moves, and in luxury real estate, it often follows the path of least resistance.
Ultra High Net Worth Momentum
In March 2022, with the COVID real estate boom at its peak, Christie’s International Real Estate brokers from around the world gathered in Aspen, Colorado, for the network’s annual Owners Conference. There, UBS wealth manager Alli McCartney, a frequent pundit on U.S. cable business networks, told the crowd, “When the pandemic ends, the wealthy will not stop spending. They have grown accustomed to paying for exclusive access, and they will continue to pay for exclusive access – to travel, to luxury goods and to real estate.”
In the ensuing years, McCartney’s words have been as bankable as a Michael Jordan jump shot. Today, while some markets are up and some are down, while sticky inflation and high rates persist, the ultra-high-net-worth buyer buys. They buy in cities and suburbs, on lakes and oceans, in the country and the mountains. Yes, they encounter speed bumps and detours along the way, but sooner or later, they reach their destination.
- In Dubai, AED10 million home sales were up 19% in the first quarter of the year on foreign demand, and pre-construction sales at that price point have more than doubled, noted Jackie Johns, Managing Director of Christie’s International Real Estate in the emirate.
- In Naples, Florida, home sales over $10 million rose 14% year over year in the first quarter.
- In Montana, PureWest Christie’s International Real Estate saw a nearly 50% increase in sales over $4 million through early May, compared to the same period last year.
- In London, Carter Jonas reports that both supply and inquiries for £5 million properties are on the rise, with the Prime Central neighborhoods of Kensington, Mayfair and Chelsea leading the way.
- Chris Trapani, CEO of Christie’s International Real Estate Sereno reports out of the San Francisco Bay Area that, “Foreign buyers are out in force and looking to plant large sums of money, $20 to $30 million, in our market.”
- On the San Francisco Peninsula and in Silicon Valley, Trapani’s colleague, Nathalie de Saint Andrieu, noted that, “My biggest surprise thus far in 2024 has been just how many qualified buyers have the capacity and willingness to pay premium prices for ultra-elite properties, which speaks to the tremendous liquidity at the highest ends of the market.”
This doesn’t mean all sellers are in the driver’s seat. In Naples for example, Mike Dodge, Director of Education and Market Research at John R. Wood Christie’s International Real Estate, puts $1 million+ sellers in two categories: those who price to market vs. those who see data point after data point about how pricing has come down since 2022, and choose to ignore it. The former group is selling in an average of 71 days at the highest sale-price-to-list-price ratio in the past decade (excluding the COVID years). The latter cohort is sitting on active listings with an average of four months of market time.
In Silicon Valley, Sereno’s Trapani adds, “There remain some sellers who are holding out, expecting to match the high-water-mark sales, and they are not having success. A high-value home that is dated will sit. If it is beautifully renovated it will sell. But the most recent sales have been below asking.”
Similar comments were shared by Christie’s International Real Estate brokers from Ottawa to Munich to the Basque region of France, and throughout the U.S. The conclusion: price matters.
But the UHNW buyer is in a strong position. Equities markets have once again rewarded investors in 2024, with the S&P 500 up 14% as of mid-June and the NASDAQ returning over 19%.
Sonja Cullaro, Co-Founder and Executive Vice President of Manhattan-based Christie’s International Real Estate Group, noted that Wall Street paid out $33.8 billion in bonuses last year. With markets chugging along in 2024, she expects another strong bonus season to lift the New York metro real estate market again.
The second half of 2024 will likely present several challenges to real estate markets worldwide. U.S. presidential elections have been known to cause buyers and sellers to take a step back, and this November’s election will be one of the most anxiety-inducing in history. Conflicts rage on in Ukraine and the Middle East. And inflation and therefore “higher-for-longer” interest rates remain a risk. But 2024 has also exceeded expectations in many regards, and the market feels like it is on track for a solid second half.
