Property prices in London rise as demand outstrips supply

London has bucked the wider UK property trend in recent months, with strong price growth and resilient demand for property pushing up prices by over 10% in the last 12 months, the latest index shows.

Whereas prices in the wider UK market fell by over 1% in the year to January, central London saw continued double digit growth with average prices rising 10.3%, according to the latest Knight Frank Prime Central London Index.

The surge in price rises has been led by the Knightsbridge and Kensington markets, where prices have improved by nearly 6% in three months. Prices are now 26.9% higher than March 2009 and 3.4% lower than their all time peak reached in March 2008.

In January tight supply of stock and resilient demand pushed prices higher in central London by 1.1% and applicant volumes were 13% higher in the three months to January compared to the same period a year earlier. Viewing volumes are also up by 30% year on year.

‘The real drivers of this demand have been overseas buyers, especially Europeans, and also City based buyers, who have been more numerous than expected given the uncertain discussions over bonus levels,’ said Liam Bailey, head of residential research at Knight Frank.

‘On the supply side, the ongoing issue of tight supply continues, while stock volumes are running at 3% above the level seen a year ago, they are still down by over 20% compared to January 2009. Current rates of sale compared to stock volumes are still running at approximately 10%, far above the long run average of 7% to 8%. This again confirms the position of limited stock in the market for buyers to choose from,’ he added.

The shortage of supply in popular locations is likely to continue, according to Noel Flint, partner at Knight Frank Knightsbridge. ‘Sellers are still undecided on whether now is the time to sell. The increase in Stamp Duty will add to the cost of moving and past experience shows that as Stamp duty rises so supply falls,’ he said.

But international buyers are likely to keep the market strong. ‘London is still seen by many as the number one capital in the world in which to live and work. The destabilisation of some Middle Eastern countries and the worries that it may spread further may lead to enquiries for London homes as a safe haven,’ he explained.

‘While the international preference is for ready to move into homes, the shortage of supply coupled with favourable exchange rates has turned the international purchaser toward off plan properties with completion dates as much as two years away,’ he added.

Meanwhile, a separate report confirms that lack of stock is bolstering the real estate market in London with multiple buyers chasing every property available for sale, according to the D&G London Property Barometer.

Despite speculation that house prices would fall in 2011 it has been a positive start to the year for the London sales market with D&G reporting the highest number of applicants it has seen in over a year and three times more than in December.

Its report says that although it is not uncommon to see an increase in both buyers and sellers in January, it appears that many of those buyers are now genuinely ready to enter the market having realised that mortgage rates are on the way up and therefore having booked their rates they now need to spend within six months.

‘Lack of stock remains the key issue for the London sales market with our figures showing almost five buyers for every property available for sale. This lack of stock continues to be caused by the inertia of low interest rates and consequent low mortgage rates,’ said Ed Mead, D&G director.

He believes that believes prices may well rise by at least 5% this year which may perhaps give buyers an extra incentive to feel they are buying at the right time.