The story of 2023’s global residential market

2023 has been a tumultuous year for the global residential property market; the outlook for 2024 will be a story of interest rates.

The story of 2023’s global residential market and its outlook for 2024 is that of interest rates.

When purchasing international property, not only do interest rate changes impact the cost of borrowing, they affect currency rates, adding an important consideration when making property purchases.

Redpin can reduce currency risk through hedging via smart FX trading and tackle the administrative complexity of property purchases via its best-in-class software systems.

Looking back over 2023 and taking the UK as an example, the sharp rise in interest rates by the Bank of England (BOE), which now stands at 5.25%, and the resultant rise in mortgage rates has cooled the market, with fewer transactions and house prices dropping by 1.2% year-on-year to October, with London suffering the most with a drop of 3.6%, according to the National Office for Statistics.

In contrast, the UK’s capital superprime market seems to be immune from interest rate rises with, for example, Adar Poonawalla, the Indian vaccine billionaire owner of Serum Life Sciences, paying £138million for Aberconway House, a mansion in swanky Mayfair, and 2023’s top London deal. Before this, Aberconway House was sold for £57m in 2020.

In a similar vein, the market for Alpine ski resort properties has also held up well, buoyed by discretionary purchases by the wealthy and tight supply. Trentino-South Tyrol in Northern Italy experienced a 12% price rise across 2023 and across all Alpine resorts tracked, prices rose annually by 4.4%, with cash buyers accounting for 70% of purchases above €1.5m.

The general story of cooling markets is repeated across the world - for example Sweden, one of the worst countries affected, dropped by 11.1% year-on-year, while the US saw a slowdown in the rate of increase from a 5% rise in the first six months of 2023 to 1.3% increase in Q3 of 2023, according to Knight Frank’s Global House Price Index.

But there are bright spots. The sun and lifestyle destinations of Turkey, Croatia, Greece and Portugal saw prices rising by 89.2%, 13.7%, 11.9% and 7.8% respectively year-on-year to September in 2023.

As a whole, the global property market has so far been far more resilient in the face of rising interest rates than anticipated - with some analysts at the beginning of 2023 predicting a crash.

So, what about the year ahead? The latest news seems to be more encouraging for 2024. The market is calling earlier interest rate cuts by central banks in 2024 than thought only a couple of months ago.

In the UK, although the BOE has signalled that it wants to see a further indication of wage rises falling before dropping its bank lending rate, mortgage companies are already offering lower fixed-rate mortgages, with one of the main lenders providing a sub-4% loan for the first time since September 2022. A similar picture is emerging from Europe with the European Central Bank (ECB) likely to reduce its rate of 4.0% as inflation drops more than initially anticipated.

The story of interest rates and their impact on the property market will be dictated by a delicate balance between controlling inflation and avoiding recession in most Western economies.

Another area to watch in the case of global property markets is regulatory changes. Greece, Portugal and Cyprus are among several countries that offered citizenship to foreigners in return for substantial investment. Called ‘golden visa’ schemes, they can be subject to change. For example, Portugal, which did allow property purchases as an investment, in October 2023 specifically excluded property assets from its requisite €500,000 minimum investment to attain the visa. On the positive side, the French Senate voted through an amendment to the country’s immigration law that would give British second homeowners the automatic right to a long-stay visa. But it still has several hurdles to jump, risking falling flat, before it becomes legislation.

While 2023 was a turbulent year for the international property market, it held up astonishingly well. The pace of market change doesn’t show signs of slowing (yet) but as the lure of bricks and mortar holds fast, 2024 looks set to be full of exciting opportunities.

Whether you plan to buy or sell, Redpin exists to connect the dots – and, in property FX, there are plenty of dots. Redpin also provides access to a pool of experts to streamline international property transactions. While it’s not always necessary to work with a business like ours, you might find it actually saves you a lot of money (and from a lot of sleepless nights).

Please note that this blog doesn’t contain legal or investment advice. It’s very important that you always get independent legal and tax advice before entering any property transaction.