Savills plc, a leading real estate firm, has predicted that at least a dozen major cities, including Hong Kong, New York, and San Francisco, are likely to experience a decline in residential property values in the year 2024. This forecast is based on their monitoring of 30 global cities, where more than half are expected to record slower annual growth in residential capital values compared to the previous year.
Slower Growth in High-End Homes
Savills anticipates a significant slowdown in the growth of high-end residential property values, with an expected increase of only 0.6% in 2024, down from 2.2% in 2023. This projected growth rate would be the lowest since 2019. The combination of high interest rates and political uncertainty in Hong Kong is driving sales downward while discouraging potential buyers. Consequently, prime residential prices in Hong Kong are expected to drop by more than 10% in 2024, making it the weakest market among those monitored by Savills.
Sentiment Affected by Weaker Macroeconomic Conditions
Kelcie Sellers, a researcher at Savills, noted that even though prime residential properties are less mortgage resilient than mainstream residential properties, the prevailing weaker macroeconomic conditions are likely to dent sentiment among potential buyers and sellers, leading many to adopt a ‘wait-and-see’ approach.
Global Challenges in the Residential Property Market
Real estate markets worldwide find themselves caught between significantly higher borrowing costs, which are expected to persist, and a shortage of available homes, which continues to keep prices elevated. Prime residential markets, which encompass the most affluent neighborhoods in global cities, witnessed subdued growth in 2023 after a surge in demand following the COVID-19 pandemic.
Key Cities Facing Challenges
Apart from Hong Kong, other cities facing challenges in their residential property markets include:
- New York: A return to office work has been sluggish, impacting demand.
- San Francisco: Ongoing tech industry turbulence affects the local market.
- Chinese Cities (Shenzhen, Guangzhou, Hangzhou): The Chinese government’s efforts to stabilize the volatile property market are expected to lead to declines in these cities.
In 2023, global prime rental values grew by 5.1%, outpacing capital values in most of the cities monitored by Savills. This was partly due to increased demand from potential buyers who delayed purchasing property until interest rates stabilized. Notably, Lisbon experienced the highest rental growth between July and December, with an average increase of 22%, driven by demand surpassing supply following the introduction of rent controls.
Potential for Eased Inflation and Central Bank Actions
Easing inflationary pressures are improving the prospects for homebuyers in 2024. The potential for central banks to reduce interest rates during the year could positively impact pricing in the latter part of the year, according to Savills.
Despite the challenges in various cities, some are expected to witness growth in residential property values in 2024:
- Sydney: Predicted to see prices grow as much as 9.9%.
- Dubai: Anticipated to experience a growth rate of up to 5.9%.
These positive growth predictions, along with expectations in Amsterdam and Tokyo, contribute to an overall positive average capital value forecast across the 30 cities monitored by Savills.
Election Year Uncertainties
Savills also highlights the potential impact of elections in nearly 70 countries in 2024, which could restrict property values in major cities. The presence of election-related uncertainties adds an additional layer of unpredictability to the outlook for the year.
While challenges and uncertainties persist, Savills expects overall positive, albeit lower, levels of capital value growth in the residential property markets of major cities for the year 2024.
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