London’s prime property boom

In spite of soaring prices and rising stamp duty, international demand for luxury London properties is still increasing.

Overseas investors are turning to London residential real estate to preserve wealth as they face political, economic and financial upheaval in their home markets.

According to London-based broker Knight Frank, the value of houses and apartments costing in excess of £3.7m increased by an average of 11.4 per cent in the year to March 2012. Prices in March alone gained 1.1 per cent, in the midst of the UK’s double-dip recession.

Although the UK government has raised stamp duty on properties costing more than £2m from 5 per cent to 7 per cent in its latest Budget, previous hikes suggest this may not do much to curb London’s mini boom. Sales of properties valued at more than £2m were subdued in April 2011, after the April stamp duty hike cause a rush of pre-emptive sales in February and March, according to Liam Bailey, Knight Frank’s head of residential research. However, the quieter period yielded quickly to the rises of the past 12 months.

Research by Knight Frank for Investment Adviser’s sister newspaper the Financial Times shows that foreign buyers now dominate sales of “super-prime” homes – typically defined as the top 5 per cent of the most valuable properties – in the world’s major cities.

Mr Bailey told the Financial Times: “The reality is the super rich who buy these properties live increasingly global lifestyles. The super-prime market wouldn’t exist without a global market. It only really got going in the past 15-20 years as Russian money poured into London and Monaco.”

This has led to many countries’ super-prime property markets being increasingly dominated by international buyers, according to the FT. The international rich have long favoured Monaco, confirmed by figures showing 100 per cent of the principality’s super-prime property is sold to international buyers, but this demographic now buys as much as 95 per cent of the expensive homes in Paris and 85 per cent in London.

Compared with the rest of the housing market, the higher priced properties have done well in the slump. In fact, the million-pound house has not only survived, but thrived.

There were 739 sales of properties worth £1m or more in the UK in the first half of 2011, 75 per cent higher than in the same period in 2006 and 29 per cent higher than in the same period in 2010. This contrasts with the total number of home sales across Britain, which fell in 2011 by 4 per cent year on year, to 698,200.

In the upper stamp duty bracket, the UK houses roughly 45,000 homes estimated to be worth at least £2m. According to Lloyds TSB, the number of property sales worth at least this has risen by 75 per cent in the past five years. There were 1,518 sales of such properties in 2011, a 5 per cent rise on 2010 and the highest number of sales in this price bracket since records began in 1995.