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London luxury home prices surge on overseas buying

Tuesday 02 August 2011

Buyers from euro zone see city as safe haven as debt crisis hits region

(LONDON) Central London luxury home prices jumped the most in six months in July as buyers from mainland Europe sought a haven from economic instability, driving values to record highs, Knight Frank LLP said.

Values of houses and apartments costing an average of £3.7 million (S$7.3 million) rose 9.6 per cent in the 12 months through July, according to an index compiled by the London-based real-estate broker released yesterday. That's the most since January, when there was a 10.3 per cent gain.

The countries that share the euro have been roiled by a sovereign-debt crisis that led to bailouts for Greece, Ireland and Portugal and now threatens Spain and Italy. That encouraged buyers to invest money in London's prime property market, where there's a pipeline of developments valued at about £21 billion, London-based consulting firm EC Harris LLP said on July 4.

'The increase in supply is in no way making up for the pent-up demand,' Grainne Gilmore, head of UK residential research at Knight Frank, said by telephone. 'With everything that's going on in the euro zone, London is definitely seen as a safe haven.'

Luxury-home values in the UK capital have rebounded faster than those for other properties as the pound's weakness also helped to attract foreign purchasers. Buyers from France, Italy, Greece and Switzerland accounted for about 16 per cent of sales in the six months through March, according to Ms Gilmore.

'You can't underestimate the demand that is coming from overseas,' she said.

The pound's 22 per cent slide against a basket of nine other developed-market currencies, as measured by Bloomberg Correlation-Weighted Indexes, since the market's previous peak in March 2008 has also made an apartment or house in affluent London neighbourhoods more affordable for overseas buyers.

Middle-East investors also targeted the UK before Ramadan starts this month, said Noel Flint, Knight Frank's head of London residential. Homebuyers from the region are likely to return to the London market after the Muslim holy month, he said.

Since January, the number of luxury homes for sale has risen about 8 per cent, Knight Frank estimates. Even so, prices in the Chelsea neighbourhood have advanced 7.7 per cent during that time, while Mayfair prices have climbed 7.2 per cent.

Prime London residential values are now 35 per cent higher than in March 2009, when the UK property market slumped during the global recession.

In July, prices for luxury houses and apartments increased 0.7 per cent from the previous month, the smallest gain since October, Knight Frank said. Rents rose 0.3 per cent, according to the broker.

Investors and developers plan to build 9,000 prime apartments and houses by the end of the decade, EC Harris said in last month's report.

The new projects include KOP Properties Pte Ltd's revamp of 10 Trinity Square, which is opposite the Tower of London, and Richard Caring's plan to convert the former US Navy building on Grosvenor Square to luxury apartments.

Source: The Business Times