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Eurozone crisis drives property investors to London

The latest prime central London index from Knight Frank shows that luxury property prices increased 0.6% in September 2011, contributing to annual growth of 11.4%.

Prices have now risen 37.2% since their recent post credit crunch low in March 2009 and are at a record high, 4.5% higher than their previous peak in March 2008.

Price growth is strongest in Chelsea and Kensington, both markets having seen 14% price growth over the past 12 months.
The volume of new sales instructions have remained unchanged over the past year, while the number of new applicants is up by 7%, and the volume of exchanges has risen 38% over the same period.

With average prime central London house prices hitting £3,968,300 in September, annual price growth of 11.4% has translated into daily price rises of £1,117 over the past 12 months.

‘If there has been an impact from European and global financial and economic market turmoil over the past few months, it seems only to have pushed more buyers into the central London market,’ said Liam Bailey, head of residential research at Knight Frank.

‘Our analysis of market activity in the three month period to September, compared to the same period in 2011, confirms a sector in good health,’ he added.

The index shows that the number of new buyers is up by 7% over this period, viewings are up by 25%, and the number of offers being made on properties is higher by 24%.

While the number of properties has risen by 13%, the rate of sales is keeping pace, with the number of exchanges rising by 38% year on year and the number of properties going under offer rising by 57% over the same period.

‘Sharp price rises over the past two years have not discouraged buyers from entering the market. Growth in demand is easily absorbing stock volume increases without downward pressure being placed on prices,’ said Bailey.

‘Last month I pointed to low interest rates and the weak pound as the key issues driving price and demand growth at the current time with some buyers from Asia-Pacific for example still able to benefit from an effective 25% discount on 2008 prices. In addition it is increasingly clear that the on going crisis in the eurozone, as well as wider global market uncertainty, is helping to support the market,’ he explained.

‘The role of central London property acting as a safe haven investment in periods of economic turbulence has been confirmed by the fact that the recent growth in purchases has been overwhelmingly driven by international buyers, with domestic buyers now accounting for only 45% of the central London market, compared to 51% 12 months ago,’ he added.

As the market has moved into new peak pricing territory, Knight Frank analysts have been watching very closely to see whether there is evidence of purchaser resistance to these new levels. ‘It appears that buyer concerns over alternative investment opportunities and the potential impact of European and global economic turmoil is trumping any concerns over the sustainability of property prices in London at the current time,’ said Bailey.

Noel Flint, head of London Residential at Knight Frank, said that the figures prove that central London is again the focus of the international market. ‘The disruption and upset caused by the London riots has not resulted in any long lasting stain and the capital's reputation remains as one of the best places in the world in which to live and work,’ he said.

‘With London prices rising gradually even domestic buyers, who represent 45% of the Central London market, are mindful that if they can afford to move they should not miss an opportunity,’ he explained.

‘The selection of good properties is still frustratingly small and in a market where buyers are cautious and wanting to buy best in class, good properties will go quickly and usually attract competitive bidding.
‘With low interest rates likely to be a feature of the market for the next six to 12 months I anticipate demand continuing at current levels and a supply of new properties still being lower than where we would like them to be,’ he added.

You can read a full analysis of luxury property markets around the world in next month’s Property Wire Confidential magazine which is published on Monday 03 October.