The latest report from Luxury Portfolio International shows that the high-end property markets around the world are still in rude health.
Sometimes, it feels like we’ll never have a normal year again. After the global pandemic changed everything in 2020 and 2021, we went in to 2022 thinking that maybe things would get back to normal. Yet the Russian invasion of Ukraine, stock market turmoil, a soaring US dollar and the unrelenting growth of the property market have continued to keep us all on our toes.
Yet even against that backdrop, agents dealing in the global luxury property market are confident in what lies ahead for the markets in the next 12 months. That’s according to ‘The Business of Luxury Real Estate’, the latest in-depth report produced by Luxury Portfolio International, or LPI. LPI interviewed a representative sample of its members, over 100 of the world’s most respected real estate professionals from more than 80 firms across the planet, and carried out a companion survey of over 1,250 affluent US-based consumers.
The results were clear: while LPI’s members share the apprehensions most of us have about world events, both they and their buyers are confident about the state of the international luxury property market for 2023.
1. 2022 will finish strongly, and 2023 will start well
An incredibly strong 95% of LPI’s member firms report either moderate or high optimism for the luxury property market over the next 12 months. Many see prices stabilising after the long period of growth, but predict that market activity will carry on at its high level.
The reasons are clear: luxury house buyers are still looking to move to the places where they want to live. That might be from city to suburbs, or suburbs to countryside, or it might be a switch to an area with an attractive business climate thanks to infrastructure, tourism or external investment.
2. The pressure on inventory and transactions is easing — and buyers are benefitting
Just under half (47%) of LPI’s members have seen their inventory grow in the last six months, with 25% seeing it remain stable. That’s eased the pressure on buyers, particularly for sales of homes at $1.25 million or above, which have experienced faster inventory growth than houses at the lower end of the market. Agents expect sales below $1.25 million to increase in the coming months, while the upper end cools: many report that days on market are increasing at higher prices, giving buyers the benefit of price reductions and greater competition among sellers to give them a good deal.
3. Affordability is levelling off as things get back to normal
Some 48% of LPI agents reported prices rising in the past six months with another 40% saying they’d remained stable. Now, those numbers have shifted: only 16% expect price growth to continue with 63% saying things will stay where they are as the market settles into a new pattern.
What does this mean in practice? In short, that things are getting back to the way they were before the pandemic. ‘Well priced and positioned listings are going over asking,’ reports one agent; another notes that, ‘there is a bit of negotiation in pricing now, whereas previously there was none.’
4. International buyers are returning to prime markets
Areas that offer great schools, safety and security medical facilities and culture are attracting savvy international buyers, many of whom are now using buying agents or other representatives to help them find a place they love. LPI’s report says that global shift is a sign of strength: ‘International buyers tend to signify a robust market economically and culturally,’ the report reads. ‘Drawing international buyers brings an area not only economic impact, but higher status on the world stage.’
5. The property market isn’t immune to world events — but some buyers are
The world is changing fast, and the big shifts that make headlines today — from war and the pandemic to the macroeconomic, political and climatic bumps in the road — are prompting house buyers to re-think locations. ‘I am already seeing people moving here from the South and West for climate and political reasons,’ says one US-based LPI member agent.
Yet while LPI members are concerned about rising interest rates, the buyers of luxury homes are less worried: LPI’s survey of consumers reported a 55% increase in the odds of buying luxury real estate in the next three months — from 14.7% to 18.2% — between July and August 2022. One particular question response stands out: 76% agreed that ‘even in times of personal financial uncertainty, I buy high-quality products.’
While the lower end of the market may be different, those fortunate enough not to have to worry about rising mortgage rates will continue as they were. These things are taken into account, but may have much less of an impact than you might expect; or, as one agent put it: ‘Interest rates and inflation are having more of a mental impact than an actual one.’
To read The Business of Luxury Real Estate and learn more about the three instalments of the State of Luxury Real Estate (SOLRE) report released annually by Luxury Portfolio International®, please visit luxuryportfolio.com/reports.