Prices rise in prime Central London, but rental market stays sluggish

KUALA LUMPUR: Prime central London residential prices increased in June, with prices almost 60% higher than the market trough in 2009. The Knight Frank Prime Central London Index recorded a 0.4% rise in June and a hike of 3.7% in the first six months of 2013 (1H13).

The strongest price growth was in the sub-£1 million (RM4.85 million) price bracket (6.6%). The biggest price growth in June was seen in Marylebone (2.8%) and the South Bank (1.4%). Year-on-year (y-o-y), the price growth in prime central London was 6.9%.

However, rents fell 0.4% in 1H13, with rates down 0.1% in June.

"Despite this recent decline, prime rents are still 21.8% higher than the trough of the market in the second quarter of 2009," said Liam Bailey, global head of Knight Frank Residential Research.

In June, average rents fell in five of the 11 markets covered by the index. This include Belgravia, Kensington, Knightsbridge, Mayfair and Marylebone. Rents were unchanged in five other markets. St John's Wood was the only area where rents increased in June (0.3%).

Bailey noted pockets of outperformance in growth figures, including Kensington (2.4%), Marylebone (1.7%) and Belgravia (0.1%).

There was also a marked rise in the number of viewings conducted in prime central London (15.5%) and the number of new applicants (8%) for 1H13.

Despite the interest, the report said it is important to note that the prime rental market in London is closely tied to business and financial market conditions, which have seen weakening job prospects.

This is reflected in the sub-£1,500 per week category, traditionally supported by City workers, where rents fell 1% in 1H13 from a year ago. However, rents remain resilient in the above £1,500 per week bracket.

Prices for luxury homes in the capital are now 58.6% higher than the market low in March 2009.

Sub-£1 million properties saw prices grow 12.1% y-o-y. In the £1 million to £2.5 million price bracket, property values rose 8.5% y-o-y in June and were 5.4% higher in 1H13 compared with 1H12.

Price growth for properties in the higher price brackets was muted in comparison — homes priced £10 million and above were worth 4.5% more y-o-y and were 1.5% higher in 1H13.

The higher stamp duty charge for properties above £2 million, introduced at last year's budget, remains a key driver behind stronger growth from the lower price brackets. This encouraged vendors to bring properties to the market — stock levels for sub-£2 million homes in prime central London were up 25% y-o-y.

In the city fringe, where the average property is valued under £1 million, prices rose 7.8% over the year to date. In Knightsbridge, where the average price for a property is above £2 million, price growth has been rather muted. — by Wong Mei Kay

This article first appeared in The Edge Financial Daily, on July 5, 2013.