It means that Hong Kong, Jakarta and Bejing are the only major global cities to have outperformed London in terms of price growth since the financial crisis low in the first quarter of 2009.
London’s relatively healthy rate of price growth compares with a somewhat anaemic fall of 1.4% for New York, a $% fall for Paris and a fall of 6% for Geneva.
The report reveals that the main international buyers in London in the last three years were from Russia, India, the US, Italy and France. Foreigners are also still keen on renting in London with 66% of all prime lets going to foreigners from 77 different countries.
South Kensington drew the largest number of international buyers as a percentage of sales in 2012, while Knightsbridge, Kensington, Hyde Park and Belgravia continued to remain popular with wealthy overseas buyers in search of a sheltered haven in which to store their wealth.
Concurrently, house price performance in these areas has been around, or above, the London average. Belgravia and Knightsbridge, for example, witnessed property values climb by 12.4% and 14.6% respectively in 2012. Hyde Park and Kensington also saw prices rise last year, up 9.3% and 8.4% respectively.
Liam Bailey, Knight Frank’s global head of residential research said that one of the primary drivers of this growth has been the appetite for prime central London homes from wealthy international buyers.
Over the last two years the proportion of £1 million plus sales in London to non UK buyers was 51%, rising to 60% for properties priced above £5 million. Overseas buyers are especially active in the new build market.
‘While a large proportion of properties purchased by overseas buyers are bought to be lived in, the investment motive is central to the decision to buy. London's reputation as a global financial centre, its political stability and transparency as well as its lifestyle benefits ensure it remains a popular choice for the globetrotting elite, while the crisis in the Eurozone has only served to boost interest in the city among Europeans,’ explained Bailey.
However, he pointed out that there was a slowing of house price growth in central London in 2012 compared to previous years despite strong international demand, with the March budget representing a turning point.
The sector has had to absorb a 40% rise in the top rate of stamp duty alongside new rules for an annual charge on £2 million plus properties held in certain ownership structures and the reform of non-resident capital gains tax rules.
‘In spite of this, prime central London residential values rose by an average of 8.7% in 2012, well ahead of rival European cities which have struggled with ongoing economic pressures and the desire of international buyers to diversify away from euro denominated assets,’ said Bailey but he added that the firm thinks market should now expect price growth to hover around zero this year.
While house prices are rising, rents have been declining for six consecutive months, and, for the first time since 2007, have posted an annual decline.
Bailey said that prospective buyers and tenants have been fairly evenly matched with available properties in the sales and rental sectors, although stock volumes in the sales market have begun to creep upwards over the past six months as a result of market uncertainty, caused in the main by the threat of new property levies.
‘London's rental market has had a difficult year, in contrast to the sales sector. Having enjoyed a prolonged period of growth throughout 2011 rents declined in 10 of the 12 months in 2012. The sector remains closely tied to city employment and until we see a recovery here it is unlikely that any significant turnaround in fortunes will be seen,’ said Bailey.
