Wealthy Chinese and Indian buyers will compete with Russians for London’s most expensive homes as the economies of the world’s two most populous nations expand and invest more in the UK, realtors Knight Frank Llc. said.

The number of Chinese buyers in London is expected to increase noticeably over the next few years as Beijing relaxes foreign exchange controls and London attracts 15% of all direct Chinese investment in Europe, more than any other European city, London-based Knight Frank said in a report.

“The potential impact of their wealth on the London market will be huge," Liam Bailey, head of residential research at Knight Frank, said in an interview. “They have a much smaller share of the market than we can expect them to get to."

A file picture of Lakshmi Mittal’s Kensington Palace Gardens home in West London. He bought it for a record £70 million

That lack of inventory is partly caused by international buyers who tend to keep their new homes even if they leave London, Bailey said.

Indian steel entrepreneur Lakshmi Mittal spent £70 million in 2004, still a world record, buying a 12-bedroom house with parking for 20 cars in Kensington Palace Gardens in west central London. Russian billionaire Roman Abramovich, owner of Chelsea Football Club, has bought houses and apartments in Belgravia near Buckingham Palace, home of Queen Elizabeth II, and an estate south of the city.

London’s open economy, a stable political environment and an advantageous tax system make it attractive to international buyers, said Knight Frank.

The opposition Conservative party on Monday proposed a tax of £25,000 a year for foreigners who live and work in Britain but who are not legally domiciled here, so avoiding UK taxes. “I don’t think it will have any impact on London," said Bailey.

Russians favor Knightsbridge, home to Harrods department store, Belgravia, Chelsea, favoured by bankers, and St John’s Wood, which includes London Zoo and Lord’s cricket ground. They are willing to pay more than £10 million for the right property, said Knight Frank. More Russians own London homes costing more than £5 million than any other nationality apart from Britons, said Bailey.

“The sheer volume of Russians in London will make it difficult to match them," said Bailey.

Many Indian buyers are “keen to uncover bargains," looking for properties or neighbourhoods where there is “improvement potential," said the Knight Frank report. It said many Indians are seeking properties priced between £750,000 and £1 million, with St John’s Wood a preferred part of the city.

Chinese buyers from Hong Kong with up to £2 million to spend like to look in Belgravia and Knightsbridge, the report said.

“The incidence of wealthy Chinese buyers purchasing property in central London is only just beginning," said Knight Frank. “Over the next two to three years we expect the number of Chinese applicants to speed up noticeably."

Emerging markets are growing faster than developed economies and the UK is the favored country for inward investment into Europe, boosting residential property purchases. India ranks second behind the US for inward investment projects in Britain.

“The UK, and in particular London, by virtue of its status as one of only two truly global financial centres, is a major beneficiary of this trend and should continue to do so for some time," said Knight Frank.