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Prime central London price growth could be slowing

Growth, however, is starting to slow. There are also signs that a minority are beginning to doubt its immunity from the crises unfolding around the globe by ensuring that they are not overly exposed in any one market, according to Gary Hersham, director of Beauchamps Estates.

Despite the current economic and financial uncertainty across the globe, the residential market of central London continues to hold its ‘safe haven’ status. ‘Indeed, instability in other countries appears to have further boosted demand for property in Central London, particularly in the upper price echelons, and the market remains strong,’ he said.

‘Research confirms our views that the world’s wealthy are still buying luxury property across the globe, mostly with cash. This has boosted prices in the world’s top cities including Paris, Hong Kong and New York as well as London,’ he explained.

Global wealth has certainly increased. The 2011 World Wealth Report highlighted that the total wealth of the world’s richest people has reached US$42.7 trillion, surpassing the level of 2007. Furthermore, the number of billionaires across the globe, as listed by Forbes, has increased by 20% in just the past year, now totalling 1,210 worldwide.
Wealth generation is most prolific within the emerging economies of the Asia Pacific. The number of new billionaires within Asia Pacific has increased by 263% in the last five years compared with 22% growth in the number of North American billionaires.

‘We have particularly seen an increase in the number of buyers from the Middle East and Asia investing in London as a long term investment. Beauchamp Estates recently took a new development of flats in Islington out to Asia, with three consecutive weekends in Kuala Lumpur, Hong Kong and Singapore. They exchanged contracts for the sale of some 40 units all off plan, with the vast majority of buyers signing contracts on the day.
Buyers were exclusively Asian residents, not expats, many of whom were pure cash purchasers,’ said Hersham.

He believes that a proportion of this new wealth is filtering into the top end of the prime central London residential market. ‘The number of sales over £5 million across our market area has increased by 59% in the first nine months of 2011 compared to the same period in 2010, with a total investment value of £1.5 billion in 2011 alone,’ he explained.

As domestic and overseas buyers have flocked to the security of the prime central London housing market, recognising the importance of a prime London property as a tangible asset within their portfolio, the rarity of supply has continued to support price growth.

Average pound per square foot values achieved for sales of properties over £5 million in central London have risen by 31.1% since the market bottomed out in early 2009. Meanwhile, average sales prices across London and England & Wales have risen by 17.9% and 6.7% respectively since the trough.

However, prices are slowing. ‘It does seem, however, that prices at the top end of the market are now stabilising with price growth slowing and more sustainable rates likely in coming months. With the global economy in a precarious position we are beginning to see a handful of high net worth buyers, particularly Russians, releasing capital from central London property in order to realise opportunities elsewhere and spread their investments. While small in number, and not something that we expect to escalate, there is a noticeable degree of caution trickling into the prime markets which may begin to curtail price growth in the coming months,’ said Hersham.

‘That said, the investment case for prime London property remains compelling. Over the past 15 years prime London homes have outperformed growth in both the FTSE and MSCI indices as well as eclipsing gold as an investment,’ he added.

With interest in central London being increasingly international, the impact of exchange rates continues to be an important part of the buying process and a fundamental factor behind the attractiveness of London property.
‘Comparing the cost of buying a property in Kensington & Chelsea, allowing for currency fluctuations, across the different financial markets highlights that the currencies most active within the prime London market are still able to buy at a lower price than at the peak of the market in 2008,’ he said.

‘While domestic purchasers are now buying property at an11% premium to the previous peak of the market in middle of 2008, buyers outside the Eurozone in particular are still seeing value in London as a place to live and an investment. Thai and Singapore purchasers in particular can acquire property at a 19% discount to prices three years ago, although for purchasers within the Eurozone, values are now back on a par with the peak,’ Hersham explained.

‘With the affluence of the world’s wealthy being resilient throughout the downturn we expect continued strong demand for property, albeit with a greater degree of caution in the future,’ he added.