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London luxury home prices up a record 3.9%

(LONDON) Luxury-home prices in London climbed at a record monthly pace in July as buyers competed for a smaller number of properties, real estate broker Knight Frank LLC said.

The average price of the UK capital’s most expensive houses and apartments rose by an average of 3.9 per cent last month from June, according to data compiled by London-based Knight Frank. The annual increase was more than 36 per cent, the highest since Margaret Thatcher came to power in 1979.

‘Add into the mix rising domestic wealth and rising foreign wealth coming into the country, we can see why prices have risen strongly,’ Liam Bailey, head of residential research at Knight Frank, the UK’s largest closely held real estate brokerage, said in the statement. The company forecast a gain of 25 per cent for all of 2007.

Investment bankers and hedge-fund managers with bonuses to spend are vying with rich individuals from Asia, the Middle East and Russia for a shrinking supply of prime real estate in central London. The number of homes for sale in the city costing at least £2.5 million (S$7.6 million) has dropped by 23 per cent since 2005, according to Knight Frank.

Britain is home to about 68 billionaires, according to the Sunday Times 2007 Rich List. Many are investors from China, India and Russia who have bought homes in London to take advantage of the city’s security, schools, stores, theatres and restaurants.

About 61 per cent of all properties in central London that fetch more than £4 million are acquired by foreigners, Knight Frank estimates.

These buyers ‘are much more likely to hold onto their property for a longer period as an investment, even if they return to their home country’, said Mr Bailey.

Brothers Sri and Gopi Hinduja, who own Mumbai-based Hinduja Group with a sibling, last year paid £58 million for a 60-room home on The Mall, the road which runs from Trafalgar Square to Buckingham Palace, according to the Sunday Times.

Other foreign residents or homeowners include Norwegian shipping magnate John Fredriksen and Vladimir Kim, chairman of Kazakhstan’s biggest copper producer, according to the Sunday Times.

Overseas buyers are also attracted by tax rules that allow wealthy non-British individuals to live in the UK, while paying their tax overseas.

The Bank of England has raised borrowing costs five times in the past year to keep a lid on inflation. The benchmark interest rate may need to climb to 6 per cent in September from the current 5.75 per cent, policy makers indicated last week, a move that would further increase mortgage costs for homebuyers.

Prime properties in London are the most expensive in the world, selling at £2,300 psf, more than comparable homes in Monaco, New York and Tokyo, according to Knight Frank.

 

Source: Business Times 21 Aug 07

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