July is Luxury Month at Inman. Tune in as we survey the evolving luxury market, explore emerging trends, and talk to top producers and influencers in the ultra-luxury space about how they got where they are today and the insights they’ve gained along the way. The month culminates with the announcement of the expanded Golden I Awards live onstage at Luxury Connect (July 29-30) in Las Vegas.
Global changes as a result of elections, interest rates, and tax and government policies are poised to impact the luxury market through the second half of 2024.
But even with these factors in flux, luxury agents remain cautiously optimistic looking ahead to the second half of what has been a relatively stable year thus far, according to midyear reports released this week from Christie’s International Real Estate and Sotheby’s International Realty.
“Hearing from our affiliates in major financial centers, emerging markets and top resort destinations around the world, we found commonalities, stark differences, as well as some surprises, when it comes to luxury real estate activity and predictions for the second half of 2024,” Thad Wong, co-CEO of Christie’s International Real Estate, said in a statement.
“Looking at our most significant sales in the first half of the year, it’s clear that, despite a complex economic and geo-political environment, the best properties continue to be in high demand.”
Sotheby’s International Realty President and CEO Philip White Jr. said in the firm’s report, “Despite market adjustments, the demand for luxury properties remains steady. In the first quarter of 2024, we achieved notable milestones, setting new benchmarks in various regions.”
What follows are highlights from each report that suggest how the luxury market may shake out for the remainder of 2024.
Interest rates
For months, market analysts have predicted drops in interest rates based on movements from the Federal Reserve, anticipating that the movement might finally lead to an increase in inventory as buyers became enticed to get off the sidelines with the promise of more affordable monthly mortgage payments.
However, the wait for that rate drop has continued much longer than expected, Sotheby’s International Realty and Christie’s Real Estate’s reports noted. And although luxury clients typically buy in cash, they still pay attention to and are influenced by rate movements.
It seems that some downward rate movement may finally be close at hand though — across the globe — the two firms’ reports suggest.
In Germany, mortgage rates have dropped significantly since November, leading buyers to gradually return to the market in increasing numbers, Christie’s International Real Estate agents said. In the U.K., inflation has also declined substantially, which has market experts predicting that interest rates will also decline at a quicker pace, the firm’s report added.
U.S. buyers will remain cautious until rates drop stateside, Christie’s Real Estate’s report said. But they continue to transact for now.
Still, the stock market’s positive momentum in the last few years will likely have a greater impact on luxury buyers, Sotheby’s International Realty’s report noted.
“Many industry forecasts anticipate that the Federal Reserve will lower interest rates later this year, which will likely be influenced by broader economic conditions and the continued focus on inflation reduction,” White said. “But while interest rates impact everything, for the luxury buyer, the performance of the stock and equity markets plays a bigger role in their purchasing decisions.”
Elections
As agents know, elections typically tend to make luxury clients pause and wait to make decisions about their investments until voters have spoken.
Sotheby’s International Realty’s report pointed out that this year is one of the largest election years across the globe, with about half the world’s voting-age population (over 4 billion people who account for more than 60 percent of the global GDP) eligible to vote, according to figures from Reuters and The Economist.
Since Democrat and Republican approaches to real estate are considerably different — Democrats aim to improve housing affordability while Republicans hope to stimulate economic growth through pro-business, low-tax policies — the result of the election could significantly impact the trajectory of the market in the next four years.
“The U.S. 2024 presidential election represents a critical moment for investors and financial analysts around the world — with the potential to have an impact on several areas, from economic policies to specific markets, the outcome could shape the global economic future,” Renata Victorino, director of Bossa Nova Sotheby’s International Realty in São Paulo, Brazil, said in the firm’s report. She said the outcome of the U.S. election will be followed closely by Brazilians, who will also have their own municipal elections in October.
Tax and government policy changes
About one-third of Christie’s International Real Estate agents said that tax considerations have an influence on buyers and sellers in the global luxury market.
Next year, a change to the U.K.’s tax laws for non-domiciled residents may cause a shift in the luxury market. For more than 200 years, the law has allowed wealthy U.K. residents to avoid taxes on income and capital gains earned abroad if they claim permanent residency outside of the country for 15 years.
As of 2025, however, non-domiciled residents will only be able to enjoy that tax freedom for four years. It’s possible that the change will spur residents to leave the U.K. for more tax-favorable destinations, Christie’s Real Estate’s report noted.
Agents in the Caribbean have heard such whisperings of interest in response to the law change, according to Christie’s Real Estate’s report.
“There may be a number of Brits moving due to changes in the non-dom laws,” John Christie, CEO of HG Christie Ltd. in the Bahamas, said.
After being swarmed with interest in response to a popular tax break, Portugal recently announced the end of its Non-Habitual Resident tax break, which was created to bring human capital and real estate investment to the country in the wake of the financial crisis. The country’s housing market has spiked so much in value since then that country leaders have had to refocus on housing affordability measures.
Meanwhile, Hong Kong has seen an uptick in foreign investors, Sotheby’s Realty noted, because of the elimination of its foreign buyers tax — buyers from abroad now pay the same tax as locals, 4.25 percent. The change has caused mainland China residents, as well as expats and other high-net-worth individuals, to look to the region’s market with interest.
Christie’s International Real Estate’s and Sotheby’s International Realty’s midyear luxury reports can be found on their websites at the links below:
Christie’s International Real Estate 2024 Global Luxury Mid-Year Outlook
Sotheby’s International Realty 2024 Mid-Year Luxury Outlook
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