Prime central London property prices grow at record rate

Residential property prices in prime central London increased by 3.9% in July, the highest monthly rate of growth since 1976, according to the Knight Frank Prime Central London Residential Sales Index.

The annualised rate at 36.4% in the 12 months to July is the highest rate since mid 1979.

Houses have outperformed flats in terms of price growth in each month since January this year, with house prices rising by 4.2% compared to only 3.6% for flats in July.

One of the key factors underpinning very strong growth in prime central London in recent months has been constrained supply - this issue has been mixed with the loss of properties to foreign owners who take the properties off the market for a long period - thereby constraining supply.

Liam Bailey, Head of Residential Research, comments: We have seen a phenomenal market in central London in recent years - led by a strong City economy, very healthy bonus rounds and growing employment and population levels in London. But this is only one half of the story - the demand side.

On the supply side we have seen the strong demand requirements met by very constrained property availability - stock levels in Q2 2007 were 11% below the same period in 2006 and 23% below the same period in 2005. Add into the mix rising domestic wealth and rising foreign wealth coming into the country we can see why prices have risen strongly.

But lets look under the surface and try to understand why supply is so constrained. One of the most significant issues has been rising foreign ownership. Over 61% of all property sales over £4M in central London go to foreign buyers.

Unlike domestic buyers foreign buyers tend not to be releasing a property into the market as they buy one - compounding their impact on the market.

Foreign buyers are also increasingly following a different pattern - by buying and then holding properties for much longer periods of time - therefore we see properties "disappear " from the market. The traditional pattern of ownership was much closer to the following scenario: the foreign buyer would arrive in the UK to take up a work contract and purchase for occupation for the period of their employment. Following the termination of their contact they would move back to the US or Europe etc.

Now the pattern has changed with the foreign buyer much more likely to hold onto their property for a longer period as an investment even following their return to their home country.

For example in 2004 an average foreign landlord letting a property after first having occupied it would only hold it for an average of 9 months before sale.
In 2007 the figure was 20 months ... and counting.

Most foreign landlords we are dealing with are much more ready to hold their properties for longer periods, thus having a significant impact on the numbers of properties available for sale.