Prime London prices continue to fall at high rate

Prime residential prices in central London fell by 3.6% in November, the second largest fall on record after the decline of 3.9% recorded in October, according to the Knight Frank Prime Central London Index.

Prices are now 14.1% lower than last year, and have fallen by 9.3% over the last three months alone.

All areas and property types have been hit by falling prices – houses are now depreciating at a faster rate than flats.

The weak pound is beginning to stimulate foreign interest in prime London property.

Liam Bailey, head of residential research, Knight Frank commented: “Prices for prime central London property have now been falling for eight consecutive months and annual growth now stands at -14.1%, the lowest rate since the index began in 1977. In June 1990, at the height of the last slump, the annual fall amounted to just 10.6%.

“In previous months we noted that super-prime properties had remained immune from the downturn, and that houses were performing better than flats. Neither of these trends have continued into the final quarter of the year.

“The value of houses in prime areas of the capital fell by 4.1% in November, a greater decline than the 3.2% recorded for flats. Consequently, areas with a greater number of entire houses, such as the northern areas of prime central London, are no longer outperforming the market.

“Super-prime property worth over £10m was still increasing in value until the summer. Now, however, it has seen three months of consecutive falls and values are 7.5% lower than at the market’s peak in August. Nevertheless, properties worth over £5m are still holding value better than cheaper homes, with values falling by 1.9% during November, compared to 4.3% for those priced at under £5m.

“The last few months have seen vendors gradually accepting that prices need to be cut if a sale is to be achieved. The rate of transactions in most of our offices appears to be increasing, albeit from a low base. Indeed, last month’s record fall of 3.9% may have reflected a sudden adjustment in expectations, explaining why the rate of decline has fallen back slightly to 3.6%.

“These dramatic falls may be painful to vendors, but prime London property is increasingly looking like very good value, particularly to foreign buyers who also benefit from the weak pound. Indeed, a fall of 15% may translate to a fall of as much as 35% to someone watching the market from the USA, as the pound has fallen by 20% against the dollar since the beginning of the year. There has been a increase in interest from such buyers over the past few weeks, which has not yet been translated into activity.

“Given the overall economic situation, we believe further price falls are to come. However, as many prime properties are unique and only occasionally come up for sale, we believe activity will increase as overseas buyers realise the home they have had their eye on for some time is now available at a much reduced price.”