London’s Luxury Property Prices

 Luxury-home prices in central London, the world’s most expensive location for prime real estate, fell the most since the first quarter of 1992 as sales slumped, Knight Frank LLP said.

The average price of houses and apartments costing more than 2 million pounds ($3.9 million) fell 1.5 percent in May from a month earlier, Knight Frank said today in a statement. That cut the annual increase to 13 percent, down from a peak of 38 percent in August.

“With the mortgage market in growing difficulties, the weakness seen across the wider U.K. market is now spreading to the prime London market,” Liam Bailey, Knight Frank’s head of residential research, said in the statement.

The prime-property market for central London has weakened “notably” in the past two months, Knight Frank said, and prices will probably fall at least 5 percent this year. Tighter lending restrictions and the prospect of the worst job cuts in London’s main financial district since 2001 deterred some potential buyers of luxury homes.

“Purchasers are struggling to access finance at the current time and, combined with weaker sentiment, this has led to a slump in sales,” Bailey said. Sales in April and May were almost 50 percent lower than the same period a year ago, he said.

Super-Prime Growth

Sales of properties costing more than 10 million pounds, known as “super-prime,” are 40 percent higher than a year ago, Knight Frank said.

“The super-prime market is the only true hot spot,” said Bailey. “This market is not immune from a downturn, but its support from international buyers, who are in part funded by oil and other commodity wealth, means the prospects for super prime are still strong.”

The super-prime market is still growing, Jim Ward, head of residential research at Savills Plc, said at a presentation in London today. “Many of the buyers are financed by margins from commodities. There’s some further growth potential within that market.”

The most expensive address in Britain is Courtenay Avenue in the Highgate neighborhood of north London, where prices average 6.8 million pounds, according to the Mouseprice Web site.

London properties priced from £5 million will not experience the house price falls being noted across the country, according Knight Frank.

According to US investment bank Citigroup, house prices could fall by as much as 15 per cent by the end of the year as sellers struggle to find buyers amid worsening economic conditions.

However, according to Liam Bailey, head of residential research at Knight Frank, London properties in the price range of £5 million and £10 million will still be in demand since they typically attract international buyers from countries whose economies have remained unaffected by the downturn.

He said: “When you go above £5 million, it becomes very much an international market – the people who are buying are overseas buyers.

“They are generally coming from countries like Russia, Ukraine, Kazakhstan, the Middle East and the Far East, and they are bringing with them wealth from economic sectors that are untouched by the credit crunch, such as oil, gas, commodities and so forth.”

He added: “They are still buying and they are buying more now than they were last year. It is very healthy at the moment. I would have said it couldn’t go on outperforming until the last five months proved that it can