The average price increased by 1.5% with Chelsea and Kensington the highest performer with a rise of %, according to the July Knight Frank prime central London residential index. It also shows thatn house prices are increasing faster that flats, increasing by 1.9% in July. Price band performance is similarly divided with properties under £2.5 million rising by 5% compared with 3.9% for properties worth more than £10 million.
It is foreign property investors that are buying property worth £1 million and more. The research report shows that they have increased their market share from 35% to 43% over the last 12 months. The growth in the market means that house prices are only 18% below their March 2008 peak. But a relatively weaker performance for flats has resulted in their prices standing almost 21% below peak levels, despite a 1% revival last month.
‘It has been another strong month for the prime London residential market with prices up across every sub-market, by area, price band and property type. While overall the UK market has seen a similar bounce in recent months, the prime markets appear to be leading the market by some margin,’ said Liam Bailey, head of residential research, Knight Frank.
He explained that rising prices in central London stem from three fundamental issues – returning confidence, resilient demand and plummeting supply. ‘One factor underpinning all else is the fact that prices fell very hard and very fast a little more than six months ago. Partially due to the panic engendered by the Lehman’s collapse, prices slipped 15% in the five months to January this year. By the early summer property in London was perceived to be offering very good value,’ he said.
‘A key attribute of the central London market has been shown up during the current downturn is the strength of demand. Confidence in the market is witnessed by the growth of applicant demand, up 37% year-on-year in the second quarter,’ he added. In making any kind of analysis, he said that it is important to look at who is buying. The July index reports that UK buyers within the £1 million plus market in London have typically comprised 65% of the market in recent years. But in the second quarter of 2009 this share dropped to 57%.
There has been a doubling of overseas demand from foreign property investors from Africa, Asia, Australia, China, the Middle East and central Asian countries like Kazakhstan, Azerbaijan and Uzbekistan. Meanwhile the number of European, Russian and North American buyers is declining. In the second quarter of 2008 some 37% of buyers were European, 19% Russian and 13% from North American. But in the second quarter of 2009 these percentages have dropped to 34%, 14% and 10% respectively.
The index also shows that supply is becoming critical. The volume of properties available in central London in July was down 34% compared to the same month in 2008 and there is no sign of any improvement with the number of properties expected to come onto the market in the autumn down 42% on last year.
Despite the rising prices Bailey is cautious about talking about a full blown recovery. ‘We can never discount the possibility of further price falls later in 2009 or even next year. While the UK economy seemsto over the worst of the recession, there is uncertainty surrounding unemployment, inflation and future interest rates,’ he said.
‘The evidence so far is that the prime London market is proving resilient due to real demand requirements from UK and overseas buyers and that tight supply is underpinning prices,’ he added. Will property investors keeping pushing London prices higher and higher?