Silver linings in slowing inflation
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
Global super-prime sales ended 2024 on a high. There were 558 US$10m+ transactions in Q4, a 24% increase from the previous quarter and 31% higher than Q4 2023.
The surge in activity was driven by substantial growth in Hong Kong (sales up 380% year-over-year), Miami (up 117% year-over-year), with strong growth also noted in New York and Dubai, according to Knight Frank's Global Super-Prime Intelligence report.
Five markets experienced an increase in sales over 2023 levels, led by a revival in key US centres such as Miami, Palm Beach, and New York, and a notable recovery in Hong Kong. Hong Kong had endured two weak years in 2022 and 2023 when lockdown measures constrained the market following the pandemic. European markets experienced a weaker 2024, with London, Geneva, and Paris all seeing sales decline over the year by between 12% and 19%.
Wealth rising
The average price for a super prime property reached US$18m in Q4, up from US$17.4m a year earlier.
Despite weaker volumes in recent quarters, London holds second place for the most expensive super-prime properties, with sales averaging US$20.4m in Q4, trailing only Hong Kong at US$22.9m. The most affordable markets were Paris and Dubai, with average prices of US$15.6m and US$15.9m, respectively.
The latest data from The Wealth Report, which we released in early March, points to strong continued demand, with the global UHNWI population growing by 4.4% through 2024, led by North America with a 5.2% increase over the year. The report also confirms continued demand for residential property from wealthy buyers, with 25% of global family offices managing private residential portfolios confirming their plans to expand their holdings over the next 18 months.
Silver linings
The UK's annual rate of inflation eased unexpectedly in February, in what is likely to be a rare piece of good news on a gloomy day for the government. The Consumer Prices Index climbed 2.8%, down from 3% in January. Economists had expected no change.
This will do little to shift the outlook - perhaps a May rate cut looks a little more likely than it did yesterday - but Chancellor Rachel Reeves will be relieved that the data landed as hoped just hours before she delivers a Spring Statement that will include a raft of cuts to both public spending and the nation's growth outlook.
Don't expect fireworks - ‘"the Treasury's aim... is to be boring"’, writes the FT's Chris Giles. Reeves is clearly operating in a tight space: among the key policies trailed in advance of her speech is £2 billion in government funding for new social and affordable homes in the 2026-27 financial year. That is in fact lower than the average state spending on the sector in the most recent five years.
As Clarion CEO Clare Miller told the FT, what affordable housing providers really want is a long-term rent settlement. Most are still playing catch up from the impact of the 7% rent cap in 2024 which ultimately led to a drop in reinvestable income. A long-term rent settlement should give them the certainty needed to be able to borrow to build.
Two-year twist
The annual rate of inflation will rise back to almost 4% later this year, according to Bank of England forecasts, but policymakers are generally happy that it will be a temporary hump.
This view - plus the volatility of the longer term outlook (see below) - has prompted the price of the cheapest two-year fixed rate mortgages to fall below five-year fixed rates. This is a return to the post-Global Financial Crisis trend; before the spike in inflation, the shorter term outlook was considered less uncertain than the longer term outlook, and money was priced accordingly.
It's too early to say whether this trend will hold, but borrowers are moving en masse towards two-year products. Leading two-year fixed rates have dropped from about 4.6% at the start of the year to around 4%, Simon Gammon of Knight Frank Finance tells the Times.
Improving affordability will act as a tailwind during the months ahead, particularly for those at the lower rungs of the housing ladder. Separate ONS figures published earlier this week revealed that housing affordability has returned to pre-pandemic levels, driven by a 20% increase in average earnings since 2021. Median sales prices have risen 1% over the same period.
The growth problem
The Office for Budget Responsibility will deliver a near-term downgrade to the UK's growth outlook today, but the struggle for growth is a long term problem.
In a speech this week, Bank of England Governor Andrew Bailey pondered the UK's 15-year stagnation in productivity. Declining labour force participation, weak productivity, low business investment, persistent trade frictions, and heightened geopolitical uncertainty are all likely to weigh on growth over the long term.
The UK does have a few barriers to growth that you would expect a traditional Labour government would set about dismantling: Bailey noted the UK's relatively low female participation rate compared to international peers, and emphasised the potential economic gains from addressing barriers like childcare costs and workplace flexibility. That would of course be expensive and what are deemed to be more pressing matters, like defence spending, are proving challenging enough.
Like others, Bailey suggests that AI could deliver meaningful gains in productivity to offset demographic and structural headwinds. "AI has the potential to reshape productivity growth," he said. Indeed, the UK is well positioned to capitalise should the optimistic forecasts come to pass - Britain is the key European hub for AI research, investment and fundraising, lagging behind only China and the US.
In other news...
Bellway signals a pickup in trading on lower mortgage rates and improved consumer confidence (Investegate).