They are followed by buyers from Europe and the Middle East all looking for homes and investment properties within the capital which is regarded as a safe haven.
‘Whilst a still relatively weak Sterling continues to attract overseas money into London, we do not believe that this is the main driver for investment. With continued uncertainty within the global economy, many are seeing the London property market as a bank, a secure place to park wealth in a tangible and usable asset,’ the report says.
‘As well as the perceived financial security offered by prime London property, the attraction of capital growth continues to bring in new investors, as well as those who are looking to add to an existing London portfolio,’ it adds.
The report also shows that over the past year the prime central London has again outperformed both the UK and London benchmarks, with prime postcodes seeing growth of 12.5% in 2011. The most sought after areas were the best performers with Knightsbridge and Mayfair recording growth of 31% and 17% respectively over the course of the year as competition for the best properties intensified.
‘Buyers within our market are looking to acquire the best properties, preferring turn key newly renovated homes, with few having the time or inclination to renovate or modernise. This is true for both investment and owner occupation,’ the report explains.
With overseas money continuing to dominate the market over £10 million, the type of property buyers are looking for has also changed. ‘Many buyers are demanding the facilities, security and levels of specification offered by new developments such as One Hyde Park and The Lancasters. These schemes have broken all price records within their local markets by offering facilities and coveted lateral living spaces which are difficult to find within period homes,’ it adds.
UK wide, development of new homes remains challenging, with a significant reduction in new schemes under construction but many developers, facing difficult market conditions outside the capital, have concentrated their efforts on the more buoyant London market.
The results of the latest Crane Survey reported an increase of 40% in homes under construction in London in 2011. However, sites within the prime boroughs remain scarce, with only three schemes over 50 units currently under construction across the whole of Kensington and Chelsea and a further four in the City of Westminster.
The report also reveals that whilst overseas money dominates the very top end of the market, domestic purchasers are more prolific in the market below £5 million, many of whom work within London’s financial sector. The South Kensington and Chelsea markets between £2 million and £5 million remain strong with a combination of domestic and overseas buyers.
Traditionally, bonus money has fed its way into the prime London market, with the size of the bonus pot affecting demand and subsequently price growth across prime London. The latest figures from the Centre for Economics and Business Research (CEBR) suggested that bonus money will be 38% lower for the latest financial year 2011/2012, just over a third of the peak in 2007/08.
The next financial year is expected to remain flat with peak levels unlikely to return until after 2016.
In parallel to the sales market, there is a shortage in the availability of rental properties in central London. Yet City job losses, lower bonus payouts and continued economic uncertainity have certainly dampened tenants incomes and thus the performance of the sector.
‘That said, the average rent achieved in prime central London still increased by 3.3% over the course of 2011. This is a simple consequence of the number of tenants looking to rent in prime London neighbourhoods continuing to outpace the amount of new stock coming to the market,’ says the report.
This mismatch between demand and supply is more acute for large properties. Average asking rents for properties over 1,000 square feet increased by 4.2% in prime London in 2011, with Belgravia and Knightsbridge recording growth in excess of 20%.
‘Supply of these more spacious properties is being further constrained because many are being sold to investors who are electing to sit on the property purely for capital gains growth, and therefore not making them available to let,’ it adds.
This has resulted in scarcity of stock at the very top end of the market with large homes in areas such as Knightsbridge and Mayfair commanding considerable premiums when they do reach the market. The number of properties let which were larger than 3,000 square feet increased by 2% in 2011, with average rents of £5,288 per week.
Chinese buyers, taking advantage of a weaker Sterling, are currently an important source of demand in central London’s new build market. They often purchase apartments at lower price bands than other overseas buyers, especially when buying solely for investment purposes, taking advantage of weak sterling, the report also points out.
