Prime London homes see prices rise again

By Daniel Thomas, Property Correspondent

Published: July 29 2009 15:37 | Last updated: July 29 2009 19:04

Demand from overseas buyers and a shortage of supply has led to a fourth consecutive month of price rises for prime central London properties.

Prices for homes valued above £1m in the capital rose 1.5 per cent in July, according to Knight Frank, the estate agency. Prices have climbed more than 5 per cent since April, although they have still fallen 14.4 per cent on an annual basis.

Overseas buyers have increased their share by a fifth during the past year, last month accounting for 43 per cent of home purchases.

The market revival has been led by Chelsea and Kensington, where prices have risen by more than 6 per cent since March. Houses have outperformed flats.

There are signs that the lower end of the prime market is seeing the most interest, with homes of less than £2.5m rising by more than 5 per cent in the past three months, compared with 3.9 per cent for properties priced at more than £10m.

Liam Bailey, head of residential research at Knight Frank, said prices had risen across every sub-market, area, price band and property type. While the UK market had seen a similar bounce in recent months, prime housing appeared to be leading the sector by some margin, he added.

Mr Bailey attributed the improved performance to three fundamentals: returning confidence, resilient demand and plummeting supply.

“One factor underpinning all else is the fact that prices fell very hard and very fast a little more than six months ago,” he said.

“We can never discount the possibility of further price falls later in 2009 or even next year. The evidence so far is that the prime London market is proving resilient due to real demand requirements from UK and overseas buyers and that tight supply is underpinning prices.”

He added that applicant numbers were up 37 per cent in the second quarter against the same period the previous year.

While the three biggest overseas markets remained European, Russian and North American, the second quarter saw a doubling in the proportion of overseas demand from Africa, Asia, Australia, China, Kazakhstan, Azerbaijan, Uzbekistan and the Middle East.

The volume of properties available in central London in July was down 34 per cent compared with the same month a year earlier. The number of properties coming to market in autumn shows no improvement, however, with the pipeline down 42 per cent over the same period.

Call to build even more houses

England needs to build even more houses than previously thought to keep housing costs under control, according to a report from the government’s chief adviser on housing affordability, writes Daniel Pimlott.

The country must add between 276,900 and 290,500 homes every year to its stock to avoid the rising cost of property affecting economic competitiveness, the National Housing and Planning Advice Unit is to warn on Thursday.

That is about 3-5 per cent more homes than the figure contained in a report last year.

The reason is that a fall in demand – because of lower immigration and a tighter mortgage market – has failed to offset pressures on housing stock caused by rising life expectancy and bigger families.

“The recession will have little impact on the number of homes we need to build over the next 20 years,” said Stephen Nickell, chairman of NHPAU.

The fall in housebuilding during the downturn would have to be made up when the recession was over if the country wanted to avoid overcrowding and adult children living with their parents for longer, as well as the potential for even more extreme boom and bust cycles, the report warned.