Outlook positive for prime central London real estate despite fall in prices

The data from the Knight Frank Prime Central London Index means that prices have now fallen by 1% since June but despite this the annual growth figure equates to 12% in the 12 months to the end of October due to strong growth over the first half of 2010.
 
‘It is fairly clear where the short term direction of the London market is headed. Demand for property has fallen back over recent months and supply has risen. These broad trends have acted to push prices lower over recent months and it seems likely that this trend has some way to go,’ said Liam Bailey, head of Knight Frank Residential Research.
 
But he points out that it would be wrong to be universally gloomy. ‘London is a market that attracts demand from across the globe and for a variety of reasons. There is some indication of prices holding up in the locations where foreign demand is strongest, in particular in Kensington and Chelsea, both areas where prices began to rise again in October after small declines in the previous three months,’ he explained.
 
While European demand has been subdued in recent months, with Euro zone buyer registrations down by 34% in October compared to October 2009, interest from Asia, Russia, the Middle East, Canada and Brazil is on the rise.
 
‘The outlook for central London remains relatively positive compared to the rest of the UK market, due to the unusual confluence of circumstances which play out in this market with foreign buyers expected to be joined by City Bonus money by the year end,’ said Bailey.
 
‘While bonuses are expected to be more varied this year compared to last year, there is very early evidence of bonus buyers coming into the market to look at available stock. Our expectation is that bonus buyers will not rush into the market in November and December, but that we will see a more delayed process with the market strengthening in January and February as these buyers wait to gauge the short term direction of the market,’ he added.
 
According to Andrew Giller, partner and head of The Buying Solution’s London office, the prime London market is particularly active at the moment. ‘We’re acting for a number of international and European buyers from a range of countries including Greece, New Zealand, India and Turkey with budgets from £10 million to £100 million plus who are looking to purchase in the traditional prime areas of Mayfair, Knightsbridge, Belgravia, Kensington and Chelsea,’ he said.
 
The company has found that the family homes market is the strongest it has been for a number of years with an increasing number of UK based clients wanting to purchase family homes in the £5 million to £15 million price range particularly in the core areas of Kensington and Chelsea.
 
‘We’re also seeing a strong demand from investment purchasers in the £1 million to £3 million price range, including people buying for children, as well as city buyers who want to purchase before bonus monies are paid out when they face more competition in the market place,’ Giller explained.
 
‘We anticipate an active early spring market as the signs are that confidence is returning to the City and money is being made and there may be a rush to purchase before the stamp duty increase to 5% on properties above £1 million which comes into force in April 2011. It is also likely that interest rates will rise, so buyers will want to lock into a competitive mortgage sooner rather than later. This could push prices up if supply and demand are imbalanced,’ he added.