Prices of London luxury homes up 17% in February

More buyers chasing fewer properties fuels sharpest increase in 2 years

Luxury home prices in central London jumped 17 per cent in February from a year earlier, the biggest gain in almost two years, as more buyers competed for a dwindling number of properties, Knight Frank LLP said.

The value of houses and apartments costing more than £1 million (S$2.1 million) rose 3.2 per cent from January, the London-based property broker said in a statement yesterday. The annual increase was the largest since the market peaked in March 2008 and compares with an 11.5 per cent advance in January. Prices are still 10 per cent lower than the peak.

‘The continuation of the growth in prices and the recent increase in the speed of such growth has been caused by a dramatic shortage of supply,’ Liam Bailey, head of residential research at Knight Frank, said.

The lack of properties for sale, combined with a surge in overseas buyers drawn by a weaker pound, helped London’s prime real estate perform better than the residential market as a whole. House prices across the country fell last month for the first time in 10 months, Nationwide Building Society said on Feb 26.

Knight Frank registered 10 new potential buyers last month for every additional property it was asked to sell in the centre of the UK capital, twice the average since the broker started tracking the ratio five years ago.

The company now has 30 per cent more new buyers than in any comparable period in the past five years, while it has 22 per cent fewer properties for sale than is normal for this time of the year.

The pound’s 22 per cent decline against the euro in the past three years attracted purchasers from Russia, Italy and Greece, in particular, Mr Bailey said. Foreigners bought 45 per cent of properties sold for more than £2 million in the past year, according to the broker.

Prices for the best properties in the Mayfair, Kensington, Holland Park and Knightsbridge districts are reaching or exceeding levels from when the prime central London market peaked in 2008, Knight Frank said.

The broker recently sold a modernised property in Mayfair for near the record price of £3,700 a square foot achieved in 2007, Richard Cutt, head of Knight Frank’s office in the district, said. He declined to be more specific because of confidentiality agreements.

‘Newly refurbished properties done to the right standard are back to their peak and are in very short supply,’ he said.

The market’s revival is drawing developers back into neighbourhoods such as Chelsea, Belgravia, Kensington and Mayfair after a gap of 18 months, Knight Frank said. Construction starts in the municipality of Kensington & Chelsea rose 43 per cent between July and December.

Consumer confidence rose to a four-month high in February as the UK emerged from the longest recession on record, market researcher GfK NOP said on Feb 26. The British economy grew at a faster pace in the fourth quarter than previously estimated, the Office of National Statistics reported the same day.

Gross domestic product increased 0.3 per cent from the third quarter, compared with a previous calculation of 0.1 per cent, the statistics office said.

The median forecast in a Bloomberg News survey of 27 economists was a 0.2 per cent gain. Prices of luxury properties in central London surged 82 per cent during the last boom, between January 2005 and March 2008, Knight Frank’s data show.

The broker compiles its luxury home index from estimated values of properties in the Mayfair, St John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighbourhoods of London.

Source: Business Times, 2 Mar 2010