Prime central London property prices up again in January but growth is slowing, latest index shows

Prices went up 1.1% in January, the tenth consecutive month of growth but it was the slowest since August 2009 and markedly lower than December’s 2.1%, the Knight Frank Prime Central London Residential Index January 2010 shows.
 
However, on an annual basis price growth is now running at 11.5% and are now 15% above the low point reached in March last year, but 12% below the market peak reached in March 2008.
 
The strongest price growth has been experienced at the top of the market in the £10 million plus sector which saw 1.5% growth in January, continuing the process of catch-up this sector is experiencing. ‘In the space of little more than 12 months we have seen a shift from a near market meltdown to boom rates of price growth,’ said Liam Bailey, head of residential research at Knight Frank.
 
‘Since last April the combined impact of ultra-low interest rates, government stimulus, and rising confidence from buyers about their own and the economy’s prospects have served to push prices higher. Now at the beginning of the 2010 spring market there still seems to be considerable life left in the recovery in pricing,’ he added.
 
While buyers are back in force, vendors are few and far between, creating a significant imbalance between supply and demand, said Bailey. There is increased demand in pretty much every price bracket, particularly the £2 million to £5 million ‘City’ segment. Figures in the report show that applicant volumes in January were 15% above their five year
average.
 
Bailey also said that most Knight Frank offices have stock levels 15% to 20% below normal for the time of year. Some have seen declines of 30% or more.
 
‘The lack of stock in the market can create something of a vicious circle, with prospective vendors waiting until they can see a wide range of choice for their next move before committing to a sale of their own property. There is also the ongoing machinations around bonus payments that has provided a reason to delay for vendors and also, to be fair, for a good number of purchasers,’ he explained.
 
There are also signs of heightened vendor expectations with talk of price increases resulting in some vendors beginning to request that asking prices are set at close to, and even above, peak levels again. ‘For anything other than perfect properties, this is a risky strategy as the market has not been truly tested by a well-stocked larder. If supply does rise it could serve to hold those ambitiously priced properties on the market,’ said Bailey.
 
Looking ahead it is difficult to predict what will happen but despite uncertainties like the forthcoming general election, sentiment in the market is, probably more positive now than it was even six months ago, according to Bailey. Knight Frank is forecasting a 3% increase in prime London prices in 2010.
 
‘There is a feeling that London has weathered the economic storm, although some jobs may have been lost to Geneva. Buyers, both domestic and foreign, are still more than willing to commit to purchases. The hope is that the election, and subsequent budget, will provide a degree of certainty regarding the regulation of the financial services sector and taxation, both of which have critical importance to the London market,’ he concluded.