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Hong Kong, London and San Francisco are among at least half a dozen major cities where prime residential property prices are headed for a drop this year as borrowing costs weigh on sentiment, according to Savills.

More than half of the 30 global cities monitored by Savills could see either negative or flat annual growth in residential capital values in 2025, a report scheduled to be released by the broker this week showed. Overall, the firm expects growth in the values of high-end homes to slow to 1.6 per cent this year from 2.2 per cent in 2024, marking the lowest gain since 2020.

Higher interest rates and political uncertainty in Hong Kong are crimping demand for homes in the Chinese territory, with prime residential prices likely to fall as much as 3.9 per cent this year following a 2.4 per cent drop in 2024. London prices are expected to dip by roughly a similar amount due to pricey mortgages and tougher taxes on the wealthy. The two cities are the softest markets tracked by Savills, alongside Guangzhou.

“The key drivers for downward pressure on pricing in London is the abolition of the preferential tax status enjoyed by non-doms and the two percentage point hike in stamp duty,” said Kelcie Sellers, a researcher at Savills. In Hong Kong, “there is a fairly cautious attitude from the central bank,” which is creating uncertainty for buyers, she added.

Cities around the world are caught between sharply higher borrowing costs and a shortage of homes that’s keeping house prices elevated. This caused prime residential markets – which cover the most affluent postcodes around the world – to see muted growth in 2024.

Weakness is also set to be driven by San Francisco and its Chinese tech hub counterpart Shenzhen. While there have been signs of stabilisation and growth in global tech markets, home values in these locations have yet to see notable benefits, Savills says.

Global prime rental values grew 4.3 per cent in 2024 – outperforming capital values – as would-be buyers chose to rent homes rather than purchase due to higher rates and scarce supply. Dubai saw the highest growth last year, soaring by an average of about 24 per cent following a surge in demand from overseas renters.

Still, prime residential markets have “proved remarkably resilient” in recent years despite economic turbulence and the uncertainty of elections around the world, Savills said. A late summer dip in US rates acted as a tailwind in the second half, though the trajectory of mortgage costs – which have risen again in January – will play a major role in price movements in 2025, the broker said.

Dubai and Sydney – both benefiting from an influx of wealthy foreigners – are set to see prices grow as much as 9.9 per cent and 5.9 per cent, respectively. Despite London’s gloomy forecast, Savills’ Sellers hopes home values in the city could surprise on the upside if interest rates come down, given its attractiveness to international buyers.

Regardless, changes to taxation, legislation and international affairs across the world following a slew of elections last year could restrict value growth in more major cities this year, according to Savills.

“I’ll be watching the impact of anything to do with taxation, such as the stamp duty hike in London,” Savills’ Sellers said. “What governments are doing to attract people to their markets” will also determine the direction of prices, she added. BLOOMBERG