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Luxury home prices may rise at slower pace

Luxury home prices may rise at slower pace
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First Published: Thu, Jun 14 2007. 09 33 PM IST
Updated: Thu, Jun 14 2007. 09 33 PM IST
London: Luxury home prices in London, the world’s most expensive city, may increase at a slower pace this year as more properties come on to a market with fewer buyers, according to real estate broker Knight Frank LLC.
The average price of London’s costliest houses and apartments probably will climb about 20% this year after an almost 29% gain in 2006, Knight Frank estimates. That would be the smallest gain since the 8.2% advance in 2005.
The number of people who registered with Knight Frank to buy a luxury home in areas including Knightsbridge has dropped 30% since March as prices continued to increase, said Liam Bailey, the company’s head of residential research, in an interview.
In May, prices rose 2.5% from the previous month and more than 33% from a year earlier, the biggest annual gain since 1979.
“We’re turning a corner,” said Bailey. “The market’s been so incredibly strong that some buyers have sat back to wait and see what happens.”
The prospect of a slowdown follows an 18-month surge driven by bonuses earned by investment bankers, money managers and brokers.
An influx of wealthy overseas investors, attracted to London’s favourable tax conditions and reputation as a world-class city, have also driven demand.
Price appreciation
The average price of a luxury house in Knight Frank’s monthly index, which draws from seven of London’s most expensive districts, is now about £5 million (Rs40 crore), with apartments costing £2.5 million.
A typical house has appreciated by at least £100,000, or about four times the average annual UK wage, each month since September.
A house worth £100,000 in 1976, when the firm began its survey, would be worth £4.2 million today.
Prime properties sell at £2,300 a sq. ft, or 5% more than nearest rival, Monaco. In New York, comparable homes sell for about £1,600 a sq. ft and in Tokyo for about £1,100, Bailey said.
The fastest gains have been for properties in the “Golden Triangle” of Knightsbridge, Mayfair and Belgravia, where homes can command £4,000 a sq. ft. “Mayfair has doubled in the past 12 months,” said Paul Davies, an interior designer and developer who also has projects in Monaco, New York and Los Angeles and whose customers include pop star Madonna. “London is the most international market.”
Overseas investors
Britain is home to about 68 billionaires, according to an annual survey published by The Sunday Times. Many are overseas investors from emerging economies such as China, India and Russia, who have bought homes in London for business purposes as well as the attraction of its security, schools, stores, theatres and restaurants.
A Knight Frank survey of high net worth individuals showed that taxes are the “single most important feature” in their choice of where to make a home. Laws allow overseas investors to live in Britain while domiciling themselves overseas for tax purposes to avoid paying levies on their global assets to the UK.
Brothers Sri and Gopi Hinduja, who own the Hinduja Group with a sibling, last year paid £58 million for a 60-room home on The Mall, according to The Sunday Times. Other overseas residents or home-owners include Norwegian shipping magnate John Fredriksen and Vladimir Kim, chairman of Kazakhstan’s biggest copper producer, the newspaper said.
Limited stock
Foreign entrepreneurs are competing for a limited stock of properties with bankers, hedge fund managers and other finance industry workers who took home record bonuses this year, according to the Centre for Economics and Business Research Ltd.
Next year’s bonuses, based on profits generated this year, probably will exceed the record £8.8 billion paid out in 2007 to some 300,000 professionals. That may continue to bolster the realty market, said Jonathan Said, a senior economist at London-based CEBR.
“We can’t see prices in London declining for a number of years,” Said added. “There’s so much activity in London and jobs growth at the top end of the market.”
International market
The wealth created in London’s financial services industry is having a trickle down effect across the city and the surrounding region.
On the St. George’s Hill private estate in Weybridge, where Beatles John Lennon and Ringo Starr once lived among rhododendrons and woods 17 miles southwest of central London and seven miles south of Heathrow airport, prices for mansions have climbed about 20% in the past 12 months.
Middle class families, priced out of their neighbourhoods of choice in London, are looking at homes they wouldn’t have considered a decade ago and gentrifying districts such as Wandsworth and Battersea, Davies said.
Because of supply shortages, average house prices in London outstripped gains elsewhere in the UK. Prices gained 14% in the British capital in the 12 months to the end of April, according to government figures. That compares with an 11.3% increase for the UK overall.
“It always feels we have reached a peak, but then we reach it and push on through,” said Simon Ashwell, an associate director of real estate broker Savills Plc in Weybridge.
Naylor contributed to this story.
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First Published: Thu, Jun 14 2007. 09 33 PM IST