With more certainty around interest rates, and their direction of travel in 2025, purchasing prime residential property became a more attractive prospect for buyers in many World Cities during 2024, with capital values growing by an average of 2.2%.

FLYING HIGH, BUT LACK OF SUPPLY

Spanish cities saw the strongest capital value growth over the course of 2024, with increases of 9.4% in Madrid and 8.6% in Barcelona for the year. Home sales in prime markets continued to grow, particularly in Madrid, where buyer activity from Latin America and the United States has demonstrated remarkable strength. Supply in both markets remains limited, driving prices to unprecedented peaks, in certain projects surpassing €25,000 per square metre in Madrid and €18,000 per square metre in Barcelona.

A confluence of factors in Tokyo supported prime capital value growth of 8.6% over 2024. The supply of new for-sale condominiums is considerably lower compared to previous years, due to the limited availability of suitable land, and high construction and labour costs. Demand for prime properties remains strong from domestic buyers and a growing number of international buyers, which has elevated prices further. While the Bank of Japan has increased interest rates, banks have generally been slow to raise mortgage rates which is supporting activity in the sales market.

Amsterdam’s capital values increased further in 2024, due to wider financing options, such as a decline in interest rates and a continued tight labour market. As a result, buyers of prime residential real estate have more confidence in the housing market, which is reflected in higher capital values.

Dubai continues to be a standout destination for prime residential property, with capital values increasing 6.8% for the year. Population growth and an influx of high net worth individuals and family offices to the UAE is underpinning strong demand for prime residential properties. Supply constraints, particularly in the villa market, are set to continue in 2025, putting upward pressure on capital and rental values. Development activity is high in Dubai and Abu Dhabi with significant supply expected to be delivered in 2025.

6 month & 1 year capital value growth by city

CHINESE CITIES

In the second half of 2024, the Beijing government frequently introduced and implemented favourable real estate policies to stimulate the real estate market. As a result, the overall sales of new or renovated housing and luxury apartments in Beijing have rebounded.

However, due to the previous market downturn across China, the average prices of existing prime house projects still declined by varying degrees, and the complete recovery regarding average prices and sales volumes still needs more time and further policy support in the long term. As such, prices remain down in all five Chinese cities in the World Cities Index; Hangzhou (-1.4%), Beijing (-2.1%), Shanghai (-2.4%), Guangzhou (-4.0%), and Shenzhen (-4.2%). Across China, transactions remain low largely due to weaker levels of market confidence – even in prime markets.

Hong Kong has also seen declining capital values, down 2.4% in 2024, but remains the most expensive residential market with average prices per square foot of $3,860 (€38,000 per square metre). The city is also seeing an increase in cash-buyers, particularly from Mainland China.

AMERICAN OPTIMISM

The mortgage rate fluctuations heavily influenced the housing market across the United States in 2024. Even in the less mortgage-reliant prime residential markets, the prevalence of the 30-year-fixed interest rate mortgage means that few are willing to enter the housing market, particularly if their current mortgage is fixed to a low rate. Inflation remains top of mind for the Federal Reserve, as the Fed and businesses react to new government policies. A late-summer dip in rates gave a second-half tailwind to this year’s home sales as buyers and sellers took advantage.

In New York City and San Francisco, bolstered confidence has continued to support price growth, with both cities seeing capital value increases of 0.9% and 0.8%, respectively for the year. Supply of prime properties remains in both cities while demand remains elevated, especially in New York City.

While increasing inventory in 2025 should allow buyers more options and more negotiating power, elevated mortgage rates would continue to challenge affordability. Households priced out of financing a home may choose to rent longer, potentially putting upward pressure on single-family rents.

WORLD CITIES INDEX PRIME RESIDENTIAL CAPITAL VALUES

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