London luxury home prices increase for first time in 17 months

LONDON: Luxury-home prices in central London rose on an annual basis for the first time in 17 months as bank and hedge-fund executives bought houses and apartments in anticipation of bonuses, Knight Frank LLP said.

Values of properties costing more than 1 million pounds (RM5.74 million) were 1.6% higher in November than a year earlier, the first annual increase since June 2008, the London- based broker said in an e-mailed statement today. Still, prices are 15% below their peak in March 2008.

“Anecdotal evidence from across our offices suggests that City money is becoming more apparent as we get closer to the end-of-year bonus season,” Liam Bailey, head of residential research at Knight Frank, said in the statement. “Demand from senior management is driving the market.”

Bonuses for financial-services employees in the City of London and Canary Wharf, the two largest financial districts, may rise 50% this year to 6 billion pounds, according to Knight Frank. Finance industry workers account for half the demand for luxury homes.

Prices rose 1.2% from in November from October, the eighth straight month-on-month increase, Knight Frank said. The most expensive homes didn’t start recovering in value until May, the broker said.

While bonuses being paid by banks such as Goldman Sachs Group Inc. are likely to help the housing market, the number of properties available will remain low, Louise Hewlett, managing director of London-based Ayslesford International said by e-mail.

False bouyancy

“It is the shortage of supply which has given the rather false impression of a buoyant market,” said Hewlett. “In some instances, high prices have been paid purely based on the lack of choice and competition from other buyers.”

Prices increased the most among properties costing more than 10 million pounds, gaining 1.9% in November from a month earlier, Knight Frank said. Houses and apartments in Chelsea, Kensington and Knightsbridge, districts favored by bankers, rose the most.

Luxury residences may return to peak prices in 2012, a year or two sooner than the rest of the UK housing market, Knight Frank and Savills Plc estimate. The pound’s 19% decline against a basket of currencies since the home market’s peak has revived demand from foreign investors.

Prices in Kensington and Knightsbridge may also have been boosted by Italian buyers benefiting from the combination of the weak pound against the euro and a tax-evasion amnesty in July, according to Savills. Italians accounted for almost half of European buyers of London property this year, compared with 20% in 2008, Savills said.

“With stock levels still 25% below normal at the current time and new buyer registrations up by 30 percent on last year, the pressure on prices in the short term at least is likely to be upwards,” Bailey said. -- Bloomberg

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