Luxury homes in the Algarve: house prices experience 4th biggest increase in the world

The uncertain climate marked by rising interest rates and high inflation hasn't shaken the world's luxury residential markets, including Portugal. This is because luxury homes in the Algarve continued to increase in value by 12.3% in 2023 compared to the previous year, the fourth highest increase among the 100 cities in the world analysed by Knight Frank. Porto and Lisbon also saw an increase in luxury house prices of 5 per cent and 2.2 per cent respectively.

Contrary to what analysts expected, "the luxury residential markets proved resilient in the face of successive interest rate rises in 2023", concludes 'The Wealth Report 2024' by property consultancy Knight Frank. This is because in 80 of the 100 cities analysed, luxury house prices rose or stabilised between 2023 and the previous year. This is exactly what the Prime International Residential Index (PIRI 100) - which analyses 100 cities, sun and snow destinations around the world - shows, indicating that, on average, there was an appreciation of 3.1% in luxury markets as a whole.

One of the destinations that saw the biggest increase in luxury house prices in 2023 was the Algarve (+12.3%), in fourth place in the table, equalling the evolution recorded in Cape Town, the capital of South Africa. Only Manila (+26.3 per cent), Dubai (+15.9 per cent) and the Bahamas (15 per cent) outperformed the appreciation of luxury housing in the Algarve region in that period, the study shows.

Among the Portuguese destinations analysed is also Porto, where luxury house prices increased by 5% in 2023 compared to the previous year. This increase placed the city of Porto in 29th place in the table. Further down the table, in 60th place, is Lisbon, where luxury homes became 2.2 per cent more expensive between those two years.

"The Iberian peninsula proved to be a hotspot, occupying 5 of the top 20 destinations with the Algarve and Ibiza (both 12 per cent) leading the way," the study points out. Among the cities in southern Europe that have seen an increase in the value of luxury homes are, for example, Marbella (7.2 per cent), Mallorca (7 per cent), Madrid (6.4 per cent) and Barcelona (2.7 per cent) in Spain; and Rome (4.5 per cent), Milan (3.5 per cent) or Lucca (2.0 per cent) in Italy. In Sardinia, luxury house prices remained unchanged.

As was the case last year, "sun destinations continued to outperform other locations, with prices rising by 4.7 per cent on average, followed by ski resorts (3.3 per cent) and cities (2.7 per cent)," the document reads.

Luxury homes in New York and London are 2% cheaper

On the other hand, luxury house prices fell in 19 destinations analysed, with the biggest reductions being seen in Oxford (-8.4%), Cannes (-7%) and Amsterdam (-5.6%). Luxury housing also fell in value in destinations such as London and Hong Kong (both -2.1%) and in New York (-2%). As a result, "luxury home prices in New York and London were 8% and 17% below recent market peaks, respectively, presenting a strong opportunity for potential buyers," the consultancy analyses.

As the markets adjusted to the rise in interest rates, the sale of luxury homes also cooled in some markets, with greater reductions being seen than in prices. For example, in London, New York, Dubai, Singapore, Hong Kong and Sydney, sales of luxury homes fell by an average of 37 per cent year-on-year, the study points out.

"Some markets corrected after sharp falls due to rapid interest rate rises (Auckland, Seoul), while in others prices rose partly due to a shortage of supply (Sydney, Singapore). Some were influenced by easier (Hong Kong) or tighter (Los Angeles) political and fiscal changes and other markets benefited from a significant wealth of inflows (Dubai, Miami)," Knight Frank further analysed.