Prices increased by 4.6% in the last three months of 2009 bringing the total annual growth in the sector to 8.8%, the research from Savills reveals. It leaves the prime central London markets just 13% away from their peak levels of 2007.
‘Prospects for the London market in 2010 look much better than for the rest of the country,’ said Yolande Barnes, head of residential research at Savills. But she warned that there is likely to be a weakening of house price growth, even in prime markets. ‘This has been made more likely by the signals given in the chancellor’s pre-budget report that remuneration for City high flyers will be curbed. This is likely to reduce both the amount of bonus money available and going into the prime central London property market,’ she explained.
But from an investment perspective prime London property should remain a good prospect, she added. ‘Those with lump sums to invest, average gross rental income yields of 4.6% on flats and 3.9% on houses, could look a lot better than interest paid on deposit accounts at present, especially as rents are now growing again at an annualised rate of about 5%,’ said Barnes.
While Savills believes that medium and long term capital growth prospects are good, stock selection is key as there are likely to be wide discrepancies between the performance of different locations and different types of property, the report indicates.
These variations mean that someone investing in Chelsea, Knightsbridge, and South Kensington flats in 1999 would have seen growth in the value of their portfolio of just 40% while, if they had put their money into flats in Holland Park and Notting Hill they would have seen 96% growth. By putting their money in houses rather than flats, they would have seen capital appreciation of 128% and 115% respectively – in the same locations.
Generally, the higher the growth seen in a sub-market during the boom years, the harder the falls in 2008 were.
‘The differing fortunes of places and property types have to do with both property and neighbourhood types and the people who buy into them. Places that became more fashionable over the decade, like Notting Hill, for example, fared very well but other locations and property types escaped the limelight,’ explained Barnes.
Some of the highest growth seen in the decade has been in markets favoured by those working in the financial services sector such as Kensington, Holland Park and Notting Hill, serviced by the Central line with its links directly into the heart of the City.
At the same time, those with families increasingly favoured the South West suburbs also known as ‘Nappy Valley’, where the value growth of houses has been the third greatest of all the sub-markets studied.
The highest growth though has been in the billionaire’s market of Prime Central South West houses in places like Mayfair, Belgravia, Knightsbridge and Chelsea. ‘This is a product of London’s ascendancy in the global property markets as it became the residency of choice for the super-rich,’ said Barnes.
‘It is doubtful though whether this type of growth can be repeated when it has been due to a one-off phenomenon like this. For this reason, we are tipping other areas for future growth,’ she added.
Good prospects, she concludes, include St John’s Wood, Regents Park, Primrose Hill, Hampstead and Highgate.
