Central London prime property prices have increased by 36% in two years, with more to come, according to the latest sector index from Knight Frank.

Despite new records being set across London’s most exclusive neighbourhoods, the market should prepare for further gains over the rest of 2011, according to the firms Liam Bailey, head of residential research.

Price growth in the prime central London market continued through August with a further 0.9% rise. Prices have been rising strongly since April 2009, and are now almost 4% higher than their previous peak in March 2008.

An analysis of market activity during August, compared to the same month in 2010, confirms a sector in rude health despite the impact of recent financial market turmoil.

On the demand side, new buyer volumes are up by 11% over this period, viewings are up by 23% and the number of offers being made on properties is higher by 13%.

Stock volumes have risen by 13%, but the rate of sales is keeping pace with this increase, with the number of exchanges rising by 15% year on year and the number of properties going under offer rising by 67% over the same period.

‘Prices are higher, as is demand, and supply increases are being absorbed by the market with a sharp rise in year on year sales volumes,’ said Bailey.

‘In trying to explain the strength of the current recovery we should note that while purchasers
buying with sterling are now paying prices in excess of 2008 peak prices, eurozone buyers are still able to achieve a 10% discount on 2008 prices and US dollar buyers an 18% discount,’ he explained.

‘It is not only exchange rates which have aided the market. The UK base rate has been held at 0.5% throughout the entire recovery period, whereas rates averaged 6% and 5% respectively during the 1992 to 2002 and 2003 to 2008 growth phases,’ he added.

Bailey also pointed out that London’s much touted ‘safe haven’ status took more than a little bruising in August, with pictures of looting, petrol bombs and rioters replacing William and Kate’s wedding as the stock image of London in the global consciousness. ‘It is too early to see any firm evidence, but the riots seem unlikely to dent most international buyers’ desire for property in the city,’ he said.

The outlook for the prime London market is for price growth to run a little further this year.
‘Barring any reversal, with an uplift of almost 11% since the start of the year, there is a
potential for a significant double digit growth rate by the year end,’ added Bailey.

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