London Houses The Priciest Piece of the Property Pie

Thanks to record end of year bonuses, which saw lucky City types pocketing over £20 billion between them, residential property prices in London have surged in the first quarter of 2007, achieving unprecedented price growth despite interest rate rises intended to curb the upward spiral. With the value of some £5 million-plus houses in the capital apparently rising at the rate of 50% per annum, prime central areas are predicted to see price rises of around 20% for 2007. The average selling price of prime London property has grown by a massive 27.4% over the last year to reach just over £1 million, a record for the region. Key drivers behind this staggering growth are continued massive demand for an increasingly short supply of quality property, which does nothing but push prices higher into the stratosphere. Wealthy overseas buyers have seeped into the market recently, taking early advantage of prices that are only expected to rise as London becomes regarded more and more as the world’s financial capital. It has been claimed that between 80 and 100 buyers compete for each property in the capital’s more exclusive areas, not helped by a large 25% drop in supply on last year. London’s bricks and mortar have increasingly become seen by serious investors as offering better potential for high return than traditional investment vehicles and as such, the capital’s property has become the physical equivalent of serious blue chip stock, with demand consistently outstripping supply, much to the delight of home owners and agents throughout the city, in particular those based in Chelsea (up 41%), Belgravia (up 43.3%) and North West London (up 37.5%).

And the price hikes are not confined to residential purchases, with interest and pounds spreading out into acquiring some of the capital’s prime commercial property. Global banking giant HSBC made history last month with the UK’s largest ever commercial property deal, selling its London headquarters to the Spanish property group Metrovacesa for a record £1.1bn, a deal which smashed the previous commercial property deal record, set only a few weeks earlier, when US real estate investors, Beacon Capital Partners, purchased the well-known Citypoint block for £650m. The two sales are indicative of the general, broad range of investors hitting the capital in droves – some 60% of commercial property deals in the first quarter of 2007 were done by overseas investors who are keen to grab the cream of office space before the rest of the world gets the London Bug and rushes to the market.

Whilst analysts are confident that this surge in the capital’s prosperity shows no sign of abating, industry experts are keen to point out that the overall property situation in the UK as a whole should not be viewed through a London-centric, skewed trajectory. The growing number of so-called ‘property cold spots’ across the rest of the UK, such as the East Midlands, where house prices are falling or stagnant, is of genuine concern to investors who have no hope of dipping a financial toe into the price madness of the capital. With the property market outside London struggling, concerns are growing over the emergence of the capital as an uncontrolled and uncontrollable ‘market within a market’, pricing regular prospective buyers out of the market.