The Global Luxury Housing Market Hits the Brakes
Luxury home price growth has finally taken its foot off the accelerator.
According to Knight Frank’s latest Prime Global Cities Index, prices in the world’s leading luxury housing markets rose just 2.5% in the 12 months to September 2025 – the slowest pace in two years and well below the “boom years” and the long-run trend.
For anyone who has watched trophy homes and sky-high penthouses surge in value since the pandemic, this moment feels like a plot twist.
From surge to slowdown
Cast your mind back: through 2023 and 2024, global luxury prices were still rising at around 3–3.6% a year, even after the pandemic buying frenzy had cooled.
That was already weaker than the 4.5% average annual growth seen over the past two decades – but it was growth nonetheless.
By Q3 2025, the story shifts again. The 2.5% rise in the year to September is:
- Down from 3.0% in Q2 2025, and
- Well below the 5.2% long-term average Knight Frank tracks across 46 global cities.
In other words, luxury markets aren’t crashing – they’re coasting.
Behind this slowdown sits a familiar villain: interest rates. Through late 2024, about 43% of a sample of global central banks were cutting rates; by April 2025, that share had dropped to just 14%.
With rate cuts arriving more slowly and cautiously than many investors hoped, the jet fuel under prime property prices has thinned out.
A global average – but very different local stories
One of the most striking details: even in this slower environment, about 61% of tracked cities still saw positive annual price growth.
So “cooling” doesn’t mean universal weakness – it means greater dispersion.
The outliers: Tokyo, Seoul, Bengaluru
At the top of the leaderboard, Tokyo has been on a tear. Prime prices there surged roughly 56% in the year to Q3 2025, followed by Seoul at around 25% and Bengaluru at just over 9%.
What’s driving that?
- In Tokyo, buyers priced out of expensive new-build projects are piling into the resale market.
- A weak yen has made Japanese real estate cheaper in foreign-currency terms, attracting international capital.
- A relatively supportive political backdrop has added confidence for both domestic and overseas investors.
Across Asia-Pacific, the picture is one of contrasts. Hong Kong is tentatively recovering as rate cuts ease financing pressures and investors hunt for value in a market that has already corrected heavily. Mainland China, by contrast, remains subdued as policy focuses shift away from real estate toward tech and domestic consumption.
In Australia, prime performance now depends heavily on your postcode:
- Gold Coast and Perth are buoyed by migration, relative affordability, and tight supply.
- Sydney remains resilient thanks to deep demand and global appeal, even as affordability caps further upside.
- Melbourne lags, hampered by a softer economic backdrop and less friendly tax policy.
The old guard: New York, London, Dubai
In the traditional heavyweight markets, the narrative is more nuanced.
- New York’s super-prime segment (US$10m+) has seen a sharp fall in sales volumes in mid-2025, with political uncertainty and potential new taxes on high earners causing some wealthy buyers to pause or look overseas.
- London has also cooled at the top end, with higher taxes and talk of reform weighing on sentiment – though a weaker pound and a deep global buyer base continue to provide a floor.
- Dubai, the breakout star of the past five years, has posted an extraordinary ~198% five-year rise in prime prices, and is now bumping up against supply constraints rather than a lack of demand.
These markets show that the current slowdown is less about a collapse in wealth, and more about policy, taxation and borrowing costs reshaping where the rich feel comfortable parking their money.
Why cooling doesn’t equal weakness
If you zoom out from the monthly headlines, the luxury housing market still looks remarkably robust.
Knight Frank’s earlier Wealth Report showed that global luxury prices rose 3.6% through 2024, with the vast majority of tracked markets either flat or rising.
What we’re seeing now is:
- A normalization of growth after years of pandemic-era distortions,
- A rotation between cities and regions, and
- A shift in pressure from prices into rents.
On that last point, luxury rents are quietly writing their own story. Knight Frank’s Prime Global Rental Index shows that, after a post-pandemic comedown, global prime rental growth re-accelerated to around 3.4% in Q3 2025, with cities like Tokyo, New York and Zurich posting rental growth far ahead of inflation.
In many global hubs, the real stress point isn’t falling luxury values – it’s a structural shortage of quality homes relative to deep pools of affluent renters.
What this means if you’re an investor or buyer
So how do you read a world where average prime prices are only up 2.5%, but some cities are exploding and others are flat or falling?
A few narrative threads to keep in mind:
-
Macro is back in charge
With rate cuts slowing and staying patchy across countries, leverage matters again. Cities where buyers rely more heavily on debt are naturally more sensitive to the higher-for-longer rate reality. -
Policy risk is real
Talk of wealth taxes, non-dom reforms or harsher property levies can cool even the most desirable markets almost overnight, as London and New York have recently demonstrated. -
Winners are often “story” cities
Markets with a strong narrative – a currency advantage, a new-wealth boom, big infrastructure investment or a lifestyle pull – are still outperforming. Think Tokyo’s yen discount, Dubai’s global hub appeal, or Bengaluru’s tech-fuelled affluence. -
Timing the cycle, not the top
Knight Frank’s research team expects prime price growth to strengthen into 2026 as more meaningful rate cuts finally feed through.
For long-term investors, today’s slower growth phase may be less a red flag and more a window – especially in solid cities that are temporarily out of favour.
The next chapter
The luxury housing market isn’t closing this cycle with a crash, but with a rebalancing:
- Growth is slower,
- Dispersion between winners and losers is wider, and
- Policy, currency and lifestyle are playing an even bigger role in where capital flows.
For UHNW buyers, family offices, and even aspirational investors eyeing the prime segment through funds or co-investment platforms, the question is no longer simply “Which city is hottest?”
It’s:
Which city has a resilient story, manageable policy risk, and pricing that reflects this new, slower but still upward global trend?
Because even at 2.5% global growth, the luxury housing story isn’t over. It’s just moved into a more interesting chapter.
Reviewed by Aparna Decors
on
December 09, 2025
Rating:
