Luxury residential real estate saw a surprising growth in 2023, with the Asia Pacific region commanding a prime position, a recent study has suggested. Despite global economic uncertainties, prime residential prices outdid anticipations, according to the latest The Wealth Report by Knight Frank.
While global luxury prices increased by a healthy margin of 3.1% in 2023, prices in Asia Pacific beat the Americas (with growth of 3.6%) to stand at 3.8%. Within the Asia Pacific region, the top five performing cities were Manila, Mumbai, Shanghai, Seoul and Auckland. Among the 100 markets tracked in Knight Frank’s Prime International Residential Index, 80 posted either flat or positive annual growth in price. The performance is particularly significant considering the successive hikes in interest rates.
The impressive growth of the luxury residential markets across Asia Pacific was helped largely by the robust economies, favorable government policies and an increasing pool of affluent population opting for opulent living, the study said. Additionally, some markets which are considered as ‘safe havens’ (like Australia and Singapore) have been witnessing a rise in investments.
Despite prices being resilient through the year, sale volumes fell significantly in several key global markets. Luxury sales fell on average by 37% YOY in London, New York, Dubai, Singapore, Hong Kong and Sydney. Some markets, such as Auckland and Seoul, corrected after drastic declines, helped by the rapid rate hikes, while other markets climbed the rankings, in part due to supply shortages (Sydney and Singapore).
The study identified significant variation in prime prices across global residential markets. Prime prices in Dubai may be 134% higher than pandemic levels, but it is still much less compared to other established luxury residential markets. Therefore, while $1 million can buy only 16 square meters in Monaco, the same amount can buy 91 square meters in Dubai, four times the equivalent in Hong Kong. The similar was observed for second homes, where $1 million can buy 143 square meters in Barbados, which is over four times as much space in St. Tropez.
LOOKING AHEAD
This year could see a change in rules and regulations, as nearly 70 countries go to polls which can have implications for wealth flows and property markets. Market conditions have improved now, while inflation is also mostly under check. However, geopolitical conditions continue to be uncertain, with the possibility of escalating energy prices. GDP growth may also be weaker than 2023 levels.
The key factors which will influence prime property markets in the coming years are:
- Policy: Acting as both an opportunity as well as a significant risk for ultra-high net worth individuals (UHNWI), changing policies can change the fortunes of a market. As public debt rises and housing affordability declines in advanced economies, there will be additional scrutiny on wealth and property by policymakers, adding another dimension for consideration for UHNWIs.
- Artificial Intelligence: AI will add sophistication, personalization and efficiency, offer insights into client behavior, preferred destinations, lifestyle preferences and favored architects and developers.
- Currency: The dollar will stay overvalued, considering the lack of another global alternative, but is expected to weaken. Inflated government debt, along with differences in interest rates may offer investors (those planning to invest in the U.S. or dollar-pegged economies, like Dubai, Barbados, the Bahamas and Hong Kong) some hope.
- Climate: Extreme weather conditions and rising sea levels have led to UHNWIs thinking twice before investing in a luxury home at a particular destination. The luxury residential sector has also been slow to adopt sustainable living methods. However, impending energy compliance regulations in some advanced economies may help accelerate change.
- Wellness: Supercharged by the pandemic, wellness is a lucrative business and is now worth $5.65 trillion, a trend which has caught the attention of luxury developers. Yoga and meditation retreats are almost mandatory features in leading ski resorts and off-grid locations (such as the Caribbean, the Nordics and Asia) are witnessing a rise in popularity.
HOTEL CONSTRUCTION
The luxury hospitality sector across Asia Pacific (except China) is also witnessing a robust growth, with the upscale chain scale touching new highs in terms of project and room counts at the end of the first quarter, according to the latest study by Lodging Econometrics (LE). While the upscale chain scale ended Q1 2024 at 483 projects and 97,013 rooms, the upper upscale and luxury chain scales closed the quarter at 376 projects/83,028 rooms and 267 projects/52,346 rooms, respectively.
The top three countries, in terms of project count, were India, Vietnam and Indonesia. Collectively, these three countries accounted for 50% of the projects in the region’s overall pipeline.
In China, the upper midscale and upscale chain scales dominated the country’s hotel construction pipeline in Q1 2024, another LE study revealed. Both chain scales posted record figures – 1,261 projects/197,224 rooms and 906 projects/206,919 rooms, respectively. Luxury projects also reached a record project count, closing the quarter with 229 projects/50,317 rooms.