Foreign Luxury Real Estate Markets Dip in 2023: First Negative Turn since 2009 Global Financial Crisis

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The year 2023 marked a significant downturn for the world's luxury property markets, with the first negative turn since the global financial crisis of 2009. This unexpected shift came after a peak growth of 10.1% in the last quarter of 2021, as revealed by the latest Prime Global Cities Index (PGCI). The PGCI, which tracks prices in 46 leading prime markets globally, fell by 0.4% in the 12 months leading up to the end of March 2023.

This deceleration in growth was primarily driven by a drastic increase in interest rates resulting from recent tightening in global monetary policy. A shift is now evident in the market, with annual prices falling in 16 of the 46 markets tracked. Although two-thirds of the markets still observe positive growth, the substantial size of price declines in the weakest markets has caused the overall index to turn negative.

Despite the negative turn, a few markets displayed exceptional performance. Dubai topped the PGCI with an impressive 44% annual price growth in 2023, despite the overall negative trend. This standout performance indicates a market undergoing significant structural changes, considering its 149% growth during the pandemic (March 2020 to date). Miami trailed Dubai, marking the only other city to achieve double-digit annual growth (11%) in Q1 of 2023. Completing the top five resilient markets were Zurich (9.4%), Berlin (5.7%), and Singapore (5.5%), indicating the tenacity of wealth and investment hubs.

On the flip side, New Zealand dominated the lower ranks of the index with Wellington witnessing a 27% fall in prices over the last year. Auckland (-17%) and Christchurch (-15.3%) followed suit, along with other weak performers like Stockholm (-11%) and Vancouver (-9.4%), all reflective of weaknesses in their broader national markets.

As the Federal Reserve and other central banks inch closer to peak rates, it is expected that even prime housing markets will continue to face downward pressure on prices for the next few quarters. However, a correction similar to that seen during the Global Financial Crisis, when the overall PGCI index fell 8.2%, seems unlikely.

Encouragingly, there are signs of improvement in some markets. Nearly half (46%) of the markets witnessed quarterly price falls during the second half of 2022, but only 28% did in the first quarter of this year, marking the lowest number since the first quarter of 2021.

The shifting dynamics of the luxury property markets in 2023 are a clear reminder of the volatility and unpredictability inherent in the global economy. As markets continue to adapt and evolve, the next few quarters will be crucial in determining the trajectory of luxury real estate worldwide.

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